Govt to Replace GST Cess on Tobacco with New Levies in Lok Sabha

Two bills introduced in the Lok Sabha during the Winter Session propose to replace the GST compensation cess on tobacco and pan masala with new levies. The Central Excise (Amendment) Bill, 2025 aims to give the government space to increase central excise duty on tobacco products after the compensation cess ends, shifting how these sin goods are taxed.

The bill would replace the existing GST compensation cess on cigarettes, chewing tobacco, cigars, hookahs, zarda, and scented tobacco with specific excise rates. It proposes excise duty on cigars, cheroots and cigarettes in the range of ₹5,000–₹11,000 per 1,000 sticks, and a levy of 60-70% on unmanufactured tobacco and 100% on nicotine and inhalation products.

Current tax structure on tobacco remains at 28% GST plus a compensation cess, which ranges 5% ad-valorem plus ₹2,076-₹3,668 per 1,000 sticks depending on length. Once the compensation cess ends, tobacco products would attract 40% GST plus excise, while pan masala would bear 40% GST plus the Health Security Cess.

The Health Security Cess Bill, 2025 would impose a cess on the production of pan masala and may be extended to other notified goods. The government says the levy would fund public health and national security initiatives.

Together, the measures seek to preserve tax revenue and fiscal space while aligning with a broader reform of GST and tobacco control policy. The government says the new levies are designed to be targeted and predictable, supporting health programs and security without abruptly destabilizing the tax base.

Cover image source: Parliament Winter Session: Govt to bring two bills in Lok Sabha to replace GST cess on tobacco, pan masala with new levies 🔗

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