New Delhi: The Central government is preparing to introduce a steep new cess of 70 per cent or more on tobacco and tobacco-related products, marking a significant overhaul in the current tax structure.
Finance Minister Nirmala Sitharaman is expected to table the Central Excise (Amendment) Bill, 2025, in the Lok Sabha on 1 December to replace the existing GST Compensation Cess imposed on these items.
Under the proposed changes, tobacco products will attract a 70 per cent cess in addition to the current 40 per cent GST rate. Cigarettes will face a separate, specific cess ranging from Rs 2,700 to Rs 11,000 per thousand sticks, depending on their length. This shift aims to safeguard the Centre’s revenue stream once the GST Compensation Cess is discontinued.
As outlined in the Statement of Objects and Reasons, the existing cess will be withdrawn only after all interest payments and liabilities linked to the compensation fund are cleared. The government noted that the amendment will ensure adequate fiscal space to maintain the high tax incidence on tobacco products.
At present, tobacco and cigarettes fall under the highest GST slab of 28 per cent, along with an additional compensation cess that varies from five per cent to 290 per cent, depending on the product.
The proposed overhaul underscores the government’s continued stance on discouraging tobacco consumption while preserving tax revenues from the sector.
Alongside this legislation, Sitharaman will also introduce the Health Security and National Security Cess Bill, 2025, which seeks to levy a new cess on pan masala and potentially other products to be notified in the future.
