Excise duty to ensure tax incidence on tobacco remains same after GST cess ends: Sitharaman

The Hindu
The Hindu
1w ago • 12 views
Finance Minister Nirmala Sitharaman announced that excise duty on tobacco will ensure tax levels remain stable after the GST cess expires. This move aims to prevent tobacco products from becoming more affordable.
Excise duty to ensure tax incidence on tobacco remains same after GST cess ends: Sitharaman
A What happened
Finance Minister Nirmala Sitharaman presented a bill on December 3, 2025, aimed at imposing excise duty on tobacco products to keep tax levels consistent after the GST compensation cess concludes. The current GST on tobacco includes a 28% rate plus a cess, which will be replaced by an excise duty of 60-70% on unmanufactured tobacco. Specific duties will apply to cigars and cigarettes, with rates designed to prevent tobacco from becoming more affordable. This legislation is crucial as the compensation cess, initially extended to cover revenue losses during the Covid pandemic, is set to expire soon. The government seeks to ensure that the tax burden on tobacco products remains unchanged, reflecting its status as a demerit good.
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Key insights

  • 1

    Excise Rates Proposed: Excise duty of 60-70% on unmanufactured tobacco and specific rates for other products.

  • 2

    GST Cess Expiration: The GST compensation cess will end soon, necessitating new tax measures.

  • 3

    Preventing Affordability: The bill aims to keep tobacco products from becoming more affordable.

Takeaways

The introduction of excise duty on tobacco products is a strategic move by the Indian government to maintain tax levels and discourage consumption as the GST compensation cess comes to an end.

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