What is the new tax on pan masala in India?

India has implemented a new tax system for pan masala combining GST based on retail price and a cess based on machine capacity, effective February 1.

How will the new GST and cess affect pan masala manufacturers?

The new dual tax framework aims to prevent tax evasion by cross-referencing sales value with production capacity, making under-reporting more difficult.

What is the total tax rate on pan masala in India?

The total tax incidence on pan masala remains at 88 percent, with the new GST and cess structure ensuring better compliance.

Home / Business and Economy / Pan Masala Tax Shake-up: Evasion Crackdown Begins

Pan Masala Tax Shake-up: Evasion Crackdown Begins

1 Jan

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Summary

New tax architecture combines GST and machine-capacity cess.
Dual tax system aims to significantly reduce evasion opportunities.
Total tax incidence remains at 88 percent effective February 1.

Pan Masala Tax Shake-up: Evasion Crackdown Begins

India has introduced a significant shift in its tax architecture for pan masala manufacturing, effective February 1. The Finance Ministry has notified a new health and national security cess, implemented alongside the existing Goods and Services Tax (GST) rate of 40 percent. This combination is designed to create a robust system for identifying tax evasion and safeguarding government revenue.

The new regime mandates that GST will be levied based on the retail sale price, providing a clear value trail. Simultaneously, a cess will be imposed based on the manufacturer's installed production capacity, establishing a crucial capacity trail. This triangulation of value and capacity data is expected to substantially curb under-reporting and clandestine production, issues historically prevalent in the pan masala and smokeless tobacco sectors.

Officials state that by cross-referencing GST filings with capacity-based cess data, discrepancies will generate immediate risk flags, drastically reducing the probability of tax leakage. This mutually validating tax framework enhances transparency and strengthens the revenue base, ensuring a more secure financial ecosystem for these industries.