Cigarettes and Pan Masala Face New Excise Duty and Health Cess Starting February 1
New excise duty, health cess, and MRP-based GST to apply on cigarettes, tobacco, and pan masala from Feb 1.
The Indian government is set to implement a new tax regime for cigarettes, tobacco products, and pan masala starting February 1, aiming to enhance regulation and curb tax evasion on these so-called “sin goods.” The revised framework introduces an additional excise duty on cigarettes and tobacco products, alongside a health and national security cess specifically for pan masala.
This new levy system will replace the previous taxation structure, under which these products were subject to 28 per cent GST along with a compensation cess, in place since the launch of GST in July 2017. The move is designed to streamline revenue collection and ensure that taxes more accurately reflect retail prices rather than factory values.
Under the new MRP-based valuation system, GST on products like chewing tobacco, filter khaini, jarda scented tobacco, and gutkha will be calculated based on the retail price printed on the packet. Officials say this method is expected to significantly reduce tax evasion, which has been a persistent challenge for these high-revenue items.
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Pan masala manufacturers will also face stricter compliance requirements. They must obtain fresh registration under the new health and national security cess law, install CCTV cameras covering all packing machines, and retain recordings for a minimum of two years. Companies are required to report their production capacity and the number of operational machines to excise authorities, with excise duty reductions allowed only if a machine remains non-functional for 15 consecutive days.
Despite these changes, the government has ensured that the overall tax burden on pan masala, including the 40 per cent GST, will remain around the current 88 per cent level. Analysts note that the new rules reflect the government’s dual goal of maintaining high revenue from sin goods while tightening regulatory oversight to curb illicit production and sales.
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