The government may increase the GST on cigarettes and other tobacco products, according to media reports. This change could happen after the compensation cess on these products is removed.
Right now, cigarettes and other tobacco items are taxed at 28% under GST, along with other charges, making the total tax about 53%. One option being considered is raising GST to 40%, the highest allowed rate, and adding an extra excise duty on top of it.
The government wants to make sure that tax revenue from tobacco products remains stable after the compensation cess ends in March 2026. Officials have stated that there are no plans to introduce a new cess to replace the current one.
A ministerial panel under the GST Council is reviewing the matter and is expected to submit its recommendations before a final decision is made.
Tobacco products are classified as “sin goods” and are heavily taxed to reduce consumption. Currently, cigarettes in India are taxed at 53%, which is lower than the 75% suggested by the World Health Organization (WHO).
Despite high taxation, tobacco products remain a major source of government revenue. In 2022-23, they contributed Rs 72,788 crore to the government’s earnings.As per the media report, multiple taxation options are being considered.
One proposal is to increase GST on tobacco products to 40% and introduce an excise duty to maintain tax revenue. Another idea is to replace the compensation cess with a health cess, but this lacks full support from the central government and some states.
Currently, tobacco products are subject to a 5% compensation cess, along with an additional levy of Rs 2,076 to Rs 4,170 per 1,000 cigarettes or cigars, based on factors like length, filter, and flavor.
The GST Council had earlier formed a Group of Ministers (GoM), led by former Odisha Finance Minister Niranjan Pujari, to review taxation on tobacco products. The GoM suggested linking the cess to a product’s maximum retail price (MRP) instead of its sales value. This proposal was later sent to a fitment committee and the GoM on rate rationalization for further discussion.
The GoM on compensation cess was also tasked with reviewing tobacco taxation, exploring two possible solutions. One option was to merge the cess with the current tax slab, while the other suggested introducing a new type of cess.
The final decision on increasing GST on cigarettes or implementing a new excise duty will be made by the GST Council after evaluating the ministerial panel’s recommendations.
👉 Click here to read the latest Gujarat news on TheLiveAhmedabad.com