'No Additional Tax On Tobacco': FM Sitharaman Clarifies On Central Excise Amendment Bill
Sitharaman said that the excise duty mop-up from tobacco will be part of a divisible pool, to be shared with states.
Finance Minister Nirmala responded to a discussion on the Central Excise (Amendment) Bill in the Lok Sabha on Wednesday and clarified that the bill does not put forth any additional tax on tobacco. During the Parliament's winter session, Sitharaman said that the excise duty mop-up from tobacco to be part of divisible pool; to be shared with states.
The Central Excise (Amendment) Bill, 2025, seeks to replace the existing GST compensation cess on cigarettes, chewing tobacco, cigars, hookah, zarda and scented tobacco with a revised excise structure. FM Sitharaman also clarified in her response that the bill is not a new law or an additional tax. "It is not something that the Centre is taking away," she said.
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“Even in India, prior to GST, tobacco rates were increased annually. This was primarily due to health-related concerns, as higher prices or taxes were intended to act as a deterrent so that people would not get into the habit," said FM Sitharaman.
Currently, tobacco products attract 28% GST plus a variable cess. Under the proposed regime, unmanufactured tobacco would face an excise duty of 60-70%, cigars and cheroots would be taxed at 25% or Rs 5,000 per 1,000 sticks, whichever is higher, while cigarettes up to 65 mm without filters would attract ₹2,700 per 1,000 sticks and Rs 4,500 per 1,000 sticks for lengths up to 70 mm.
The levy of excise on tobacco will ensure that incidence of tax on the demerit good remains same even after the expiry of the GST compensation cess, according to FM Sitharaman.
Moving the Central Excise (Amendment) Bill, 2025, for discussion and passage in the Lok Sabha, Sitharaman said since the GST law caps maximum rate of tax at 40 per cent, the ultimate tax incidence on tobacco after removal of GST cess would come down from the current level if excise duty is not levied.
Elaborating on the bill, FM Sitharaman said the compensation cess which was collected till 2022 went in the hands of the states, it was given off to the states and by law at that time when gst was introduced compensation cess was to be collected for five full years and it came to an end in 2022.
