The central government is going to impose a new cess on the compensation tax on tobacco and tobacco-related products. The winter session of Parliament began on Monday, December 1 and on the very first day it was announced that Finance Minister Nirmala Sitharaman is going to introduce a new bill.
The Central Excise (Amendment) Bill, 2025 will be introduced in the Lok Sabha on Monday. Currently, there is a GST compensation cess on tobacco and tobacco products. That cess will be replaced if this new bill is passed.
In the new bill, an additional 70% cess will be imposed on tobacco and tobacco products on top of 40% GST. On the other hand, in the case of cigarettes, a fixed cess ranging from Rs 2,700 to Rs 11,000 will be imposed on every 1,000 cigarettes. The amount of this cess will depend on the length of the cigarette. It is learned that this arrangement has been made so that there is no loss of revenue after the cancellation of the compensation cess.
A cess is an additional tax levied by the government for a specific, earmarked public welfare purpose. Unlike regular taxes that go into a general fund for various expenses, the revenue from a cess must be used exclusively for the designated objective, such as education, healthcare, or infrastructure.
According to a statement, the Compensation Cess on tobacco and related products will be discontinued after all interest payments and loan liabilities under the cess account are fully settled. The amendment is intended to provide the government with fiscal space to increase the central excise duty on tobacco to “protect the tax incidence”. The proposed overhaul reflects the government’s motive to maintain the historically high tax burden on tobacco. Currently, tobacco, cigarettes and other tobacco products are subject to 28 per cent GST, and 5-290% compensation cess.
In addition, the Finance Minister will introduce the Health Security and National Security Cess Bill, 2025. The bill may propose to impose a new cess on pan masala and possibly other products which will be announced by the government later.
Modi government’s initiatives aiming to reduce tobacco use
The Narendra Modi government has always strongly opposed the consumption of tobacco, placing priority on public health through stringent regulations, public awareness campaigns, and taxation to reduce consumption. The government has stated there is “no soft corner for the industry” and is committed to implementing strategies to curb the tobacco menace.
Key measures and initiatives include banning E-Cigarettes, and similar devices through the Prohibition of Electronic Cigarettes Act, 2019, prohibiting all direct and indirect advertising of tobacco products and mandating that no tobacco products can be sold within 100 yards of any educational institution, mandatory pictorial warnings covering a significant portion of tobacco product packaging.
The government has also consistently raised taxes (excise duties and a compensation cess) on tobacco products to increase prices and discourage consumption. Apart from these, the Ministry of Health and Family Welfare actively runs campaigns like the “Tobacco Free Youth Campaign 3.0” and uses platforms like the MyGov portal and social media to educate the public, especially youth, about the harmful effects of tobacco use.
Tobacco control efforts are integrated with other major health initiatives, such as the National TB Elimination Programme and the National Health Policy 2017 targets for non-communicable diseases. The government also runs a toll-free service (1800-112-356) offering counselling in multiple languages, and operates Tobacco Cessation Centres to help users quit.