New Tobacco Taxes and Cess on Pan Masala Introduced

The Indian government is preparing to introduce legislative changes that will raise excise duties on tobacco products and impose a new cess on pan masala. The bills, expected to be presented in Parliament, aim to address the loss of revenue from the cessation of the GST compensation cess. This initiative includes the 'Health Security se National Security Cess' that is intended to enhance funding for national security and public health initiatives.

The new laws will amend the Central Excise Act, ensuring that the excise duty on tobacco products remains high even after the GST compensation cess lapses. For instance, the excise duty on unmanufactured tobacco is projected to reach 60-70%, while filter cigarettes could face duties of up to Rs 5,200 per thousand cigarettes. This move reflects the government’s strategy to maintain fiscal stability amidst rising defense expenditures.

The cess on pan masala will be directly linked to production levels in manufacturing units. For example, manufacturers producing up to 500 pouches per minute could be liable for a cess of Rs 1.01 crore. These measures are part of a broader effort to monitor and regulate the production of pan masala and other related products, addressing concerns over tax evasion within this sector.

With the cessation of the GST compensation cess expected by March 2026, the government has to strategize its fiscal policies carefully. Historically, the cess has played a critical role in compensating states for revenue losses caused by the transition to the GST system. The government had borrowed significant amounts during the pandemic to manage these shortfalls, and the new measures aim to stabilize these finances.

Furthermore, previous discussions within the GST Council have highlighted the need for stricter compliance measures in the pan masala and gutkha industries. The proposed changes indicate a commitment to enforcing tax regulations more effectively while generating necessary revenue for health and security purposes. As these bills move forward, they will be pivotal in shaping India's fiscal landscape regarding tobacco and pan masala products.