Parliament Winter Session: Government to impose new levies on tobacco
What's the story
The government will introduce two bills in the Lok Sabha on Monday to replace the existing Goods and Services Tax (GST) compensation cess on tobacco products and pan masala, news agency PTI reported. The Central Excise Amendment Bill, 2025, is intended to provide the government with the fiscal space to adjust excise duties on all tobacco products, such as cigarettes, chewing tobacco, cigars, hookahs, zarda, and scented tobacco, once the GST compensation cess ends.
Tax continuity
New bills aim to maintain tax incidence on sin goods
According to the statement of objects and reasons of the Bill, The Central Excise Amendment Bill, 2025, aims "to give the government the fiscal space to increase the rate of central excise duty on tobacco and tobacco products so as to protect tax incidence," once the GST compensation cess ends. Meanwhile, the Health Security-cum-National Security Cess Bill, 2025, proposes a new cess on the manufacture of pan masala and other specified goods.
Cess conclusion
Compensation cess regime nearing its end
The compensation cess regime is coming to an end as loan repayments are expected to be completed by December. The GST compensation cess was initially introduced for five years till June 30, 2022, and was extended by four years till March 31, 2026. It was meant to compensate states for revenue losses due to GST implementation and the COVID-19 pandemic impacts.
Cess decision
GST Council meeting decides on cess continuation
During a GST Council meeting on September 3, 2025, it was decided that the compensation cess on tobacco and pan masala would continue until loan repayments are completed. For other luxury items, the compensation cess ended with GST rate rationalization to two slabs of 5% and 18%. A maximum rate of 40% was fixed for ultra-luxury goods, aerated drinks and other demerit goods.