Centre’s tobacco tax rejig to take effect from Feb. 1, Pg1

Key Highlights:

• The Union Finance Ministry will implement the new taxation regime for tobacco products starting February 1.
• The Central Excise (Amendment) Act, 2025 specifies new excise duty rates on tobacco products.
• The Health Security se National Security Act, 2025, levying a cess on pan masala units, will also take effect from February 1.
• Beedis have been moved to the 18% GST category, while other tobacco products are in the 40% slab.
• A new valuation mechanism for certain tobacco products will base GST value on the retail sale price.

Detailed Insights:

• The excise duty on cigarettes under GST was a nominal amount, and the GST compensation cess rate on tobacco products hadn't increased since July 2017.
• The GST compensation cess, introduced to compensate states for losses from GST implementation, will cease to exist from February 1.
• The cess was extended until 2026 to repay the loan taken to compensate states during the COVID-19 pandemic.
• A dedicated cess through the Health Security se National Security Act, 2025 is intended to provide sustained funding for national security functions.
• Removing the cess on most items except tobacco was done on September 22, 2025.

Key Concepts Involved:

• Excise Duty: A tax levied on the production or sale of specific goods within a country.
• GST Compensation Cess: A levy to compensate states for revenue losses due to the implementation of the Goods and Services Tax (GST).
• Cess: A tax levied for a specific purpose, often in addition to existing taxes.