The government has fixed the maximum rate of GST compensating cess on pan masala, cigarettes, and all other tobacco types, with the highest rate linked to the retail selling price. This measure has been implemented to ensure the efficient collection of taxes in a structured manner.
Finance Bill 2023
The cess rate has been capped due to the amendments to the Finance Bill 2023. The Lok Sabha passed this bill last Friday. According to the amendment, the maximum GST compensation cess rate for pan masala will be 51 percent of the retail sale price per unit.
This marks a significant reduction compared to the earlier system that levied a cess of 135 percent ad valorem. Similarly, tobacco, which was previously charged at Rs 4,170 per thousand sticks, will now be subject to a cess of 290 percent ad valorem or 100 percent of the retail sale price per unit. It is important to note that the highest charge levied so far has been Rs 4,170 per thousand sticks plus 290 percent ad valorem.
[Note: A Cess is a supplementary tax charged by the government for particular purposes, in addition to existing taxes such as excise and personal income tax. Unlike regular taxes and levies, this extra tax is levied until the government has sufficient income for the particular purpose. The Goods and Services Tax is a unified indirect tax regime implemented nationwide.]
cigarettes
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GST rates on tobacco products
This cess will be charged over and above the maximum Goods and Services Tax (GST) rate of 28 percent. The recent changes in schedule-I of the GST compensation cess Act, brought in via an amendment in the Finance Bill, now cap the maximum cess that can be charged on Pan masala and tobacco products.
Credit: Google
In February, the GST Council, under the leadership of Union Finance Minister Nirmala Sitharaman and comprising state finance ministers, endorsed the report of the state finance minister panel on combatting tax fraud in the pan masala and gutkha sectors.
To enhance initial revenue collection, the Group of Ministers had proposed switching from an ad-valorem levy to a specific-rate charge for the compensatory cess on pan masala and chewing tobacco. This move is aimed at curbing tax evasion in the concerned industries.
Impact of GST on tobacco products
The tobacco industry is subject to various taxes and levies, including Central Excise duty, National Calamity Contingent Duty (NCCD), GST, and compensation cess, owing to its status as a sin good. Tobacco sales generate substantial revenue for the Indian government, albeit falling short of the WHO’s recommended minimum tax burden of 75% on all tobacco-related products.
Consequently, an escalating demand for an augmented tax burden on tobacco manufacturers exists. To this end, the Indian government has been steadily increasing the rate of taxes charged on cigarettes and tobacco products. In the 2023 Budget, it was proposed to increase the NCCD rate by 16%.
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Taxes and levies imposed on cigarettes and tobacco products
According to the GST law, cigarettes and tobacco products are categorized as sinful goods, subjecting them to a compensation cess. Similarly, the Central Excise laws impose an excise duty and National Calamity Contingent Duty (NCCD) on these products. The manufacturing rates for cigarettes and tobacco products have been outlined in the following table, detailing the most recent excise duty, NCCD, and compensation cess rates.
Tobacco is an unforgiving thing in India.
Tobacco has existed in India for a long time, and the citizen is deeply connected with this no matter what the price goes, whether very high or very low. Government practices will not affect these consumers.
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