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New Tax Replaces Tobacco Cess for Health & Security
1 Dec
Summary
- New cess for public health and national security to replace tobacco GST compensation cess.
- The new levy aims to maintain current tax burden on tobacco products.
- The transition is linked to the repayment of loans for state compensation.
India's Finance Minister Nirmala Sitharaman is set to introduce a Bill in Lok Sabha to levy a new cess dedicated to public health and national security. This new measure will replace the existing GST compensation cess on tobacco, which is scheduled to expire once the loans taken by the Centre for compensating states are fully repaid. This transition is anticipated to occur before March 2026.
The proposed levy will be applied to the manufacturing process of specified goods, with the objective of ensuring that the overall tax incidence on tobacco products, including cigarettes and gutkha, remains consistent. This policy aims to uphold the government's strategy of discouraging tobacco consumption through robust taxation.
The move follows the GST Council's decision to restructure tax rates, moving most items to a predominantly two-rate structure. Tobacco products, classified as 'sin' goods, will transition to a 40% GST slab, with the new cess and additional excise duties bridging any remaining tax gap.
