Cigarettes to cost 15-40% more from February 1, Pg3

Key Highlights:

• Cigarette prices are set to increase by 15-40% from February 1 due to higher duty rates on tobacco products.
• The government has notified new duty rates for tobacco products and cess rates for paan masala.
• Share prices of cigarette manufacturers like ITC and Godfrey Phillips India fell by almost 10% and 17%, respectively.
• A 'Health Security se National Security Cess' will be levied on paan masala, along with a 40% GST rate.

Detailed Insights:

• The new duty structure replaces the compensation cess under the original GST regime with a higher GST rate of 40% and revised excise duties.
• The National Calamity Contingent Duty (NCCD) on cigarettes remains unchanged, while excise duties now range from Rs 2,050-8,500 per 1,000 sticks.
• The Finance Ministry stated that the affordability of cigarettes has stagnated, justifying the tax increase for public health reasons, referencing a World Bank article recommending a 75% tax incidence on retail price.
• The Tobacco Institute of India expressed concern that the increased duties will promote illegal cigarette sales, as legal cigarettes constitute only 10% of total tobacco consumption but contribute 80% of tobacco tax revenue.
• Central excise duty on chewing tobacco and gutkha will be levied based on production capacity, aiming to curb evasion in these sectors.
• The changes were introduced as the GST compensation cess is set to lapse after March 2026, which guaranteed states compensation for revenue losses since the GST rollout.

Key Concepts Involved:

• GST (Goods and Services Tax): An indirect tax levied on the supply of goods and services.
• Cess: A tax levied for a specific purpose in addition to the existing tax.
• Excise Duty: A tax imposed on the production or sale of goods within a country.