The government has officially announced that starting from February 1, new fiscal levies on tobacco products and pan masala will take effect. This change signifies a significant alteration in the taxation structure of what are termed sin goods, moving away from the previous compensation cess regime to product-specific levies that fall outside the Goods and Services Tax (GST) framework.
According to the new notification, an additional excise duty will now be imposed on tobacco and related products. Additionally, a Health and National Security Cess will be specifically levied on pan masala. These levies will be applicable in conjunction with the current GST rates, marking the end of the compensation cess that was previously levied to offset revenue losses experienced by states post-GST implementation.
Effective February 1, products such as pan masala, cigarettes, and tobacco will incur a GST rate of 40 percent. In contrast, biris will continue to be taxed at a lower GST rate of 18 percent. This differential rate structure underscores the policy's intent to balance revenue collection with the economic realities faced by low-income consumers who typically purchase biris.
The recently introduced Health and National Security Cess will be specifically applicable to the manufacturing of pan masala. On the other hand, tobacco and its derivatives will incur an additional excise duty. Both of these levies are intended to function independently of the GST and are aimed at reducing consumption while simultaneously generating dedicated revenue for public health initiatives and national security priorities.
The legal framework enabling these new levies was passed by Parliament of India in December through the enactment of two Bills. These Bills authorized the implementation of the Health and National Security Cess on pan masala and the additional excise duty on tobacco products. These measures align with the Government of India’s broader objective to reduce harmful consumption while ensuring stable revenue flows beyond the mechanisms of GST compensation.
Q1. What are the new levies on tobacco and pan masala?
Answer: Starting February 1, 2023, new fiscal levies will replace the compensation cess on tobacco and pan masala. These include an additional excise duty on tobacco and a Health and National Security Cess on pan masala.
Q2. What is the GST rate for tobacco products?
Answer: From February 1, 2023, the GST rate on pan masala, cigarettes, and tobacco products will be set at 40 percent, while biris will maintain a lower GST rate of 18 percent.
Q3. How does the Health and National Security Cess work?
Answer: The Health and National Security Cess is specifically levied on the manufacturing of pan masala and operates independently of the GST framework, aimed at discouraging consumption and funding health initiatives.
Q4. Why was the compensation cess removed?
Answer: The compensation cess was removed to implement new product-specific levies that better align with the government's objectives of reducing harmful consumption and ensuring stable revenue beyond GST compensation.
Q5. What legislative changes approved the new taxation structure?
Answer: The new taxation structure was approved by Parliament through the enactment of two Bills in December, which authorized the imposition of the new levies on tobacco products and pan masala.
Question 1: What is the GST rate on pan masala starting February 1, 2023?
A) 18%
B) 40%
C) 28%
D) 5%
Correct Answer: B
Question 2: What new cess is introduced for pan masala?
A) Health and National Security Cess
B) Environmental Cess
C) Consumption Cess
D) Service Cess
Correct Answer: A
Question 3: What is the new GST rate for cigarettes?
A) 30%
B) 15%
C) 40%
D) 20%
Correct Answer: C
Question 4: What is the purpose of the new fiscal levies?
A) To increase government revenue
B) To encourage tobacco consumption
C) To replace income tax
D) To reduce the GST rate
Correct Answer: A
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