Lok Sabha Approves Pan Masala Cess; Funds to Strengthen National Security and Public Health

New Delhi, India: The Lok Sabha on Friday passed a significant bill imposing a cess on pan masala manufacturers. The revenue generated from this tax will be allocated to enhancing national security and improving public health infrastructure.

Finance Minister Nirmala Sitharaman, responding to discussions on the “Health Security to National Security Cess Bill, 2025,” emphasized that the government’s aim is to raise resources responsibly, without imposing additional burden on essential goods. She highlighted that the bill specifically targets harmful products, including pan masala, rather than basic necessities.

“We are not taxing staple items that affect ordinary citizens. The cess is applied only to harmful goods. Revenue from this will also support defense and infrastructure projects, such as road construction,” the Finance Minister said.

Targeted Levy and Regulatory Background

The new bill replaces the earlier compensatory cess system and ensures that funds collected are directed towards national security and public health-related expenditures. Sitharaman clarified that the cess is not a new levy; India had four similar cesses in place before 2014. Part of the revenue will also be shared with states, and the collection process falls under the scrutiny of the Comptroller and Auditor General (CAG).

The Finance Minister reassured that the bill will not affect GST rates, which will remain at 40% on pan masala consumption. The levy will be imposed on machines and processes used in the manufacture of these products.

Historical Context and Rationale

When GST was implemented on 1 July 2017, a compensatory cess system was introduced to offset revenue losses for states, initially set for five years and later extended to 31 March 2026. The proceeds helped repay loans taken by the central government to compensate states for GST revenue shortfalls during the COVID-19 pandemic.

Minister Sitharaman also referenced historical gaps in defense procurement, highlighting that for decades, critical defense purchases were delayed due to systemic inefficiencies. She underscored that funds raised from the cess will contribute meaningfully to strengthening India’s national defense capabilities.

Objective of the Bill

The “Health Security to National Security Cess Bill, 2025” aims to:

• Generate additional revenue from harmful products, primarily pan masala.
• Strengthen national security initiatives.
• Support public health measures.
• Ensure transparency and accountability in revenue allocation, with part of the funds shared with state governments.

With the passage of this bill, the government seeks to balance public health, economic efficiency, and national security, ensuring that harmful consumption is taxed while critical sectors receive much-needed funding.