The Union government is preparing to introduce two significant tax bills that will redefine the taxation framework for tobacco and pan masala products. With the GST compensation cess approaching its expiry, the new laws aim to secure a permanent revenue mechanism while maintaining high tax incidence on demerit goods.
Excise Amendment to Replace GST Cess
The Central Excise Amendment Bill 2025 will allow the Centre to revise excise duties on cigarettes, chewing tobacco, hookah products and related items. This move ensures that overall tax levels remain stable even after the compensation cess is phased out, protecting government revenue while enabling flexible rate adjustments.
Transition to a New GST Regime
As part of the ongoing GST rationalisation, the current 28% tax slab is being replaced. Ultra-luxury and sin goods — including all tobacco items — are expected to shift to a proposed 40% GST slab. In the future, tobacco will be taxed through GST plus central excise duty, replacing the present GST plus compensation cess structure.
New Security and Health Cess on Pan Masala
A separate Health Security-cum-National Security Cess Bill will introduce an additional levy on pan masala and selected notified items. This cess, charged on manufacturers, will supplement GST collections. Revenue generated from it may be earmarked for public health and national security initiatives, aligning fiscal policy with welfare goals.
