Additional Excise Duty on Tobacco from February 1

The government has announced an important change in the taxation of tobacco and pan masala products. From February 1, a new tax structure will come into force, replacing the existing compensation cess. This move aims to impose higher levies on sin goods through additional excise duty and a new cess, over and above GST, with implications for prices, revenue, and public health policy.

Why in the News?

The Centre has officially notified February 1 as the date from which additional excise duty on tobacco products and a Health and National Security Cess on pan masala will be levied. These new taxes will replace the compensation cess currently charged on these products.

What Has the Government Notified?

The government has introduced two major changes,

• Additional excise duty on tobacco and related products
• A new Health and National Security Cess on pan masala
• These levies will be imposed in addition to GST and will come into effect from February 1, as per the notification issued after parliamentary approval.

New Tax Rates on Tobacco and Pan Masala

From February 1, the tax structure will be,

• Pan masala, cigarettes, tobacco and similar products: 40% GST
• Biris: 18% GST

On top of GST,

• Pan masala will attract the Health and National Security Cess
• Tobacco products will attract additional excise duty

Replacement of Compensation Cess

The new levies will replace the compensation cess that was earlier imposed on sin goods under GST. The compensation cess was originally introduced to compensate states for revenue losses after GST implementation. With this change, tobacco and pan masala will now be taxed through a different mechanism.

Legal and Parliamentary Background

In December, Parliament of India approved two Bills that allow,

• Levy of Health and National Security Cess on pan masala manufacturing
• Imposition of additional excise duty on tobacco products
• These Bills provide the legal basis for the new taxes starting February 1.

Background: Taxation of Sin Goods in India

Sin goods like tobacco, alcohol and pan masala are taxed heavily in India to,

• Discourage consumption due to health risks
• Generate higher government revenue
• Offset social and healthcare costs

Under Goods and Services Tax, such products attract higher GST slabs along with cesses or excise duties.

Key Summary At Glance

Question

Q. From which date will additional excise duty on tobacco products be levied?

A. January 1
B. February 1
C. March 31
D. April 1