New taxes on cigarettes, pan masala to kick in tomorrow
What's the story
Starting February 1, a new tax regime will be imposed on cigarettes and pan masala. The changes include an additional excise duty on cigarettes, a health and national security cess on pan masala, and an MRP-based GST valuation system for tobacco products. The new taxes will be imposed over and above the existing GST rate, which includes a 40% GST on such products.
Compliance measures
Pan masala manufacturers must register under new law
From February 1, pan masala manufacturers will have to register under the health and national security cess law. They will also be required to install a working CCTV camera system covering all packing machines and preserve footage for at least two years. Manufacturers will have to inform excise authorities about the number of machines they have, their capacity, and can claim abatement in excise duty if a machine is non-functional for at least 15 consecutive days.
Tax rates
Excise duty to be imposed on cigarettes
The Central Excise Act has been amended to impose an excise duty of ₹2.05-8.50 per stick depending on the length of the cigarette. Short non-filter cigarettes (up to 65mm) will incur an additional duty of about ₹2.05 per stick while short filter cigarettes of the same length will be charged around ₹2.10 each. Medium-length cigarettes (65-70mm) will face an additional duty of roughly ₹3.6-4 per stick, and long, premium ones (70-75mm) about ₹5.4 each.
Tax application
Revenue sharing with states
Chewing and jarda scented tobacco, as well as gutkha will attract an excise duty of 82% and 91%, respectively. The revenue generated from the excise duty on these products will be distributed among states based on Finance Commission recommendations. The health cess imposed on pan masala manufacturing units will also be shared with states through health awareness or other schemes/activities related to public health.
Tax comparison
Cigarette taxes unchanged for 7 years
In India, cigarette taxes have remained unchanged for seven years since the introduction of GST in July 2017. This is contrary to global best practices and public health recommendations that suggest annual increases in duties to ensure cigarette prices rise faster than incomes. According to World Bank estimates, India's total tax incidence on cigarettes is about 53% of retail price, significantly lower than WHO's recommended threshold of 75% or more for significant reductions in tobacco consumption.