Shocking Tax Hike on Tobacco! Parliament Passes Bill – Are Your Favorite Brands Next?

India's Parliament has cleared the Central Excise (Amendment) Bill, 2025, a significant move that will empower the government to impose substantially higher excise duties on tobacco and allied products. This legislative development occurs as the Goods and Services Tax (GST) compensation cess for these items is set to conclude.

The Bill, after being approved by both the Rajya Sabha and the Lok Sabha, is now set to become law. This paves the way for increased taxation on a product category currently subject to a 28% GST along with a varied cess.

Key Provisions

• The proposed excise duty rates are notably higher. For unmanufactured tobacco, the duty could range from 60% to 70%.
• Cigars and cheroots might face an excise duty of 25% or ₹5,000 per 1,000 sticks.
• Cigarettes will be taxed based on length and filter, with rates proposed between ₹2,700 to ₹11,000 per 1,000 sticks.
• Chewing tobacco is slated for a tax of ₹100 per kg.

Parliamentary Debate and Concerns

• Opposition parties, including Congress, sharply criticized the bill. They argued that the primary objective is revenue generation rather than public health promotion.
• Congress MP Jebi Mather stated the bill highlights issues with GST implementation and has "notional security" but no real health impact.

Government's Stance

• Finance Minister Nirmala Sitharaman reassured Parliament that tobacco products will continue to be taxed under the 'demerit category' with a 40% GST rate.
• She also highlighted government initiatives aimed at encouraging farmers in states like Andhra Pradesh, Karnataka, Bihar, West Bengal, and Maharashtra to transition from tobacco cultivation to other cash crops.
• Over one lakh acres are reportedly shifting from tobacco farming to alternative crops in these regions.

Future Expectations

• Once enacted, the law will provide the government with a new tool to adjust excise duties on tobacco products.
• This move is expected to significantly impact government revenue collection from the sector.

Impact

• This legislation will likely lead to increased prices for consumers of tobacco products, potentially curbing consumption.
• Tobacco manufacturing companies may face higher operational costs and reduced profit margins.
• The government anticipates a substantial increase in tax revenue from this sector.
• Farmers involved in tobacco cultivation will be further nudged towards crop diversification.

Impact Rating: 7/10

Difficult Terms Explained

• Central Excise (Amendment) Bill, 2025: A proposed law to change existing central excise tax rules, specifically concerning tobacco products.
• GST (Goods and Services Tax): A consumption tax levied on the supply of goods and services in India.
• GST Compensation Cess: A temporary tax levied to compensate states for any revenue loss arising from the implementation of GST. This cess is ending for certain products.
• Excise Duty: A tax levied on the production or sale of specific goods within a country.
• Demerit Category: A classification for goods considered harmful or undesirable, which are typically subject to higher taxes under the GST regime.