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The Union Government may raise GST on cigarettes and tobacco from 28% to 40% and add an excise duty to maintain revenue. The current total tax is 53%, below WHO’s 75% recommendation
In the 2022-23 financial year, tobacco products generated Rs 72,788 crore in tax revenue. (Representative/AP File)
The Union Government is considering increasing the GST on cigarettes and tobacco products to prevent a reduction in tax revenue. Currently, in addition to the 28% GST, other charges are levied, bringing the total tax burden to 53%. However, this is significantly lower than the 75% recommended by the World Health Organisation (WHO).
The government is considering increasing the Goods and Services Tax (GST) on cigarettes and tobacco products as the Compensation Cess levied on these products is set to expire.
Currently, in addition to the 28% GST, compensation cess and other charges are levied on cigarettes and tobacco products, resulting in a total tax of 53%. The government is contemplating increasing the GST to 40% and imposing a separate excise duty.
The objective is to ensure that tax revenue from these products remains unaffected after the compensation cess expires. This cess, effective until 31 March 2026, will not be replaced with an alternative as it is deemed ineffective, according to an official.
Cigarettes and tobacco products are classified as ‘sin goods’, meaning products deemed harmful to health. In addition to GST, Basic Excise Duty and National Calamity Contingent Duty are also levied on them.
The World Health Organisation (WHO) recommends a 75% tax on cigarettes. However, in India, the current tax rate stands at 53%. Tobacco and tobacco products represent a substantial source of tax revenue for the Indian government. In the 2022-23 financial year, these products generated Rs 72,788 crore in tax revenue.
Another option before the central government is to implement a Health Cess in place of the Compensation Cess; however, some states oppose this. The central government is also not in favour of introducing any new cess.
The GST Council established a Group of Ministers (GoM) to address tobacco product taxation concerns. This group recommended linking the GST cess component to the product’s maximum retail price (MRP) instead of the selling price. The Fitment Committee and the Group on Rationalisation of Rates are currently reviewing the matter.
