Excise Duty on Tobacco Products to Benefit States, Says Finance Minister Nirmala Sitharaman

New Delhi: The Union Government recently introduced a bill in the Lok Sabha to levy excise duty on tobacco products, which was passed unanimously on Wednesday. Responding to discussions in the House, Finance Minister Nirmala Sitharaman clarified that this is not a new tax or a fresh levy but a structured excise duty, aimed at replacing the earlier compensation cess system.

“This is not a new law, nor is the central government imposing any additional tax,” Sitharaman said. She emphasized that the excise revenue from tobacco products will be shared with the states, ensuring that no state receives less than the amount recommended by the Finance Commission.

Key Highlights of the Excise Bill

• The Central Excise (Amendment) Act allows the government to levy excise duty on cigarettes ranging from ₹2,700 to ₹11,000 per 1,000 sticks, depending on the category.
• For other tobacco products, rates range from 60%-70% per kilogram, with chewing tobacco subject to a 100% levy.
• Retail Sale Price (RSP) and mandatory declarations will now be displayed on all paan masala packets starting February.

Clarifying Misconceptions
Addressing criticism that the government is using GST compensation cess funds to repay its debt, the Finance Minister stated that the compensation cess was collected for a five-year period specifically to compensate states for revenue losses due to GST implementation. Any excess funds collected were used to offset loans taken during the COVID-19 pandemic to support state revenues.

Background
Excise duties on tobacco existed even before GST and were periodically increased to discourage tobacco consumption. However, after the introduction of GST in 2017, rates on cigarettes and tobacco products remained largely unchanged, resulting in stable affordability, according to the World Health Organization (WHO).