The Lok Sabha on Wednesday passed the Central Excise (Amendment) Bill, 2025, by voice vote, empowering the government to impose excise duties on tobacco and related products once the GST compensation cess expires after settling outstanding liabilities to states. Introduced by Finance Minister Nirmala Sitharaman on Monday, the legislation amends the Central Excise Act, 1944, to replace the current cess on items like cigarettes, chewing tobacco, cigars, hookah, zarda, and scented tobacco with a structured excise regime, ensuring continuity in taxation for these demerit goods without increasing the overall tax burden.

Sitharaman, during a brief discussion on the bill, clarified that it does not introduce any new or additional taxes on tobacco, countering opposition concerns about potential revenue hikes. She emphasised that the excise duties collected under the new framework will be part of the divisible pool of central taxes, shared with states as per Finance Commission recommendations, unlike the non-shareable GST compensation cess. The minister highlighted that excise duties predate GST and are a standard levy, maintaining that the total tax incidence on tobacco products will remain unchanged post-cess expiry.

The bill's passage comes amid the government's efforts to streamline indirect taxation post the 15-year GST compensation period, originally designed to offset revenue losses for states during the transition from state VAT regimes. With the cess—currently layered atop 28% GST on tobacco—set to phase out once dues are cleared, the amendment ensures fiscal stability for the tobacco sector while aligning with health objectives to discourage consumption through consistent sin taxes.

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Under the proposed rates, unmanufactured tobacco will attract 60-70% ad valorem excise duty, while cigars and cheroots face 25% or ₹5,000 per 1,000 sticks (whichever is higher). Cigarettes up to 65 mm without filters will be levied at ₹2,700 per 1,000 sticks, and those up to 70 mm at ₹4,500 per 1,000 sticks, calibrated to match the effective rates under the existing GST-plus-cess structure. This tiered approach targets higher taxation on premium and filtered variants to promote public health without disrupting the industry.

Opposition members, including those from Congress and Trinamool Congress, raised procedural objections during the debate, arguing for more scrutiny given the bill's implications for a ₹50,000-crore tobacco industry employing millions. However, with the government's majority, the bill moved swiftly to passage and is now awaiting Rajya Sabha approval before receiving presidential assent. Sitharaman assured the House that stakeholder consultations with tobacco boards and state governments had informed the rates, ensuring no unintended economic shocks.

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