New Tax Bills Target Tobacco, Pan Masala as GST Cess Nears End
The Union government has introduced two key bills in the Lok Sabha to overhaul the tax structure on tobacco, pan masala and related products. The move comes ahead of the scheduled expiry of the GST compensation cess that currently applies to these items. Finance Minister Nirmala Sitharaman tabled the Central Excise (Amendment) Bill, 2025 and the Health Security and National Security Cess Bill, 2025 to ensure that taxation on these products continues without disruption.
Why the Change Is Needed
Tobacco and pan masala are presently taxed at 28 percent GST along with a compensation cess that was introduced to offset states’ revenue losses after the rollout of GST. With compensation liabilities nearing completion, the cess is set to lapse. The new bills aim to replace it with excise duty on tobacco and a separate production-linked cess on pan masala.
Government’s Explanation
According to the government, the changes are intended to maintain the overall tax burden on these “sin goods” even after the GST cess ends. Revenue from the new levies is expected to support health-related expenditure and strengthen national security funding. Officials have clarified that the intention is not to increase the effective tax rate but to ensure continuity.
What It Means for Prices and Industry
If approved, tobacco products such as cigarettes will attract excise duty instead of the current GST compensation cess. Pan masala manufacturers will pay a cess calculated on production capacity, which may impact factory-level costs. Retail prices may see minor adjustments, but experts expect the overall tax incidence to remain broadly unchanged since the government is substituting one levy with another.
Next Steps
The bills will now be taken up for discussion and passage in Parliament. Once enacted, the new excise duty and cess framework will replace the existing GST-plus-cess model before the compensation cess formally ends.
