Centre's tobacco tax recast to lift states’ excise revenue

The duty on tobacco would rise from 64% to 70% once the amended law is implemented

- Gireesh Chandra Prasad

Tobacco and its products such as cigarettes and pan masala currently attract 28% GST and a compensation cess that goes up to 290% in some cases.

(REUTERS)

The Centre on Monday moved to overhaul the taxation of tobacco and related products, including cigarettes, snuff, smoking mixtures, and pan masala, by proposing to raise excise duty and replacing the goods and services tax (GST) compensation cess on them with a health and national security cess.

Finance minister Nirmala Sitharaman tabled two bills in the Lok Sabha aimed at keeping overall tax incidence steady while ensuring states benefit from excise revenues.

Tobacco products are subject to both GST and central excise duty. To preserve the overall tax burden after discontinuing the compensation cess, the government has proposed amending the Central Excise Act and introducing a new cess in its place.