Govt introduces new cess, amends law to tax tobacco products

Union Finance Minister Nirmala Sitharaman on Monday introduced the Health Security to National Security Cess Bill, 2025 alongside amendments to the Central Excise Act in the Lok Sabha, marking a significant shift in the taxation framework for tobacco and pan masala products. The move aims to impose a fresh cess on pan masala and related products once the current GST compensation cess expires in December.According to sources, the amendment to the Central Excise Act will enable the government to raise excise duty on tobacco products, while the new cess bill will impose an additional levy on pan masala and related items. “This is being done to ensure the overall tax incidence on tobacco products does not come down after the removal of compensation cess,” a person familiar with the matter said.
The bill states that the cess is intended “to augment the resources for meeting expenditure on national security and public health, and to levy a cess on machines or processes involved in manufacturing specified goods.”The move comes after the government overhauled the GST structure in September, introducing a two-tier system of 5% and 18%, while replacing the 28% slab with a special 40% rate for sin and luxury goods. These include tobacco products, aerated drinks, caffeinated beverages, high-end cars, motorcycles above 350 cc, and personal-use aircraft and yachts.While the compensation cess—earlier levied between 1% and 290% on goods in the 28% bracket—has been abolished for most products, it continues only on tobacco items, prompting the need for a redesigned levy mechanism.

(Business Correspondent)