The Goods and Service Tax(GST) Council has announced to raise the cess on cigarettes. The decision was made in order to reduce the profit margin of companies and harm to public health. The Council didn’t reveal the exact price, however, the exact amount of the cess would depend on the length of the cigarettes. The increase in the cess price will generate an extra revenue of ₹5,000 crore. At present, cigarettes are taxed at the peak rate of 28%, along with a cess of 5%.
The Cess on cigarettes of up to 65 mm was raised by ₹485 per 1,000 sticks in the case of both filter and non-filter ones. For non-filter ones, longer than 65 mm is increased by ₹792 per 1,000 sticks while for filtered ones, between 65 mm and 70 mm, the cess was raised by ₹621 per 1,000 sticks and for those between 70 mm and 75 mm, it was increased by ₹792 per 1,000 sticks.
In the case of cigars and king-sized cigarettes (84 mm), the cess changed to 36% from 5%, while the specific or fixed cess remained the same.
After the meeting, conducted over video conferencing, Finance Minister said, “It was noted in the first 15 days of GST implementation that the rate on cigarettes did not factor in the cascading effect of taxes. We noted that cigarette firms were getting windfall profits from the reduction in cigarette prices.” As the cigarette manufacturers had not reduced prices so far.
He added the states had unanimously agreed to change the cess on cigarettes. Earlier, the meeting was scheduled on August 5, but an urgent meeting was called on Monday to address the issue of cess on cigarettes.
Based on the weighted average value-added tax rate of 28%, the Council had in May fixed the GST on cigarettes at the same rate, with an additional compensation cess. However, this method of calibrating the compensation cess did not take into consideration the cascading of taxes. As a result, the total tax incidence on cigarettes in the GST regime came down. Manufacturers could have passed the lower taxes to consumers by way of cutting prices but they did not.
The GST Council will meet in the first week of August to review the progress of the implementation of the tax.
