India’s central government is considering an additional cess (levy) on tobacco products such as cigarettes, gutkha, and chewing tobacco to sustain current tax revenues from these “sin goods” without altering the Goods and Services Tax (GST) framework, Moneycontrol reported. The move comes as the compensation cess regime under GST 2.0 is being phased out on products including tobacco and pan masala.
The Centre reportedly intends to maintain the existing tax incidence through a separate central levy, ensuring states do not lose revenue once the cess mechanism expires. With consumption recovering and sin goods already in the 40% GST bracket, the Centre reportedly does not foresee a significant drop in state collections, opting instead for fiscal measures outside the GST framework to preserve inflows from tobacco and related products.
Currently, tobacco products attract 28% GST plus a cess, bringing the effective tax burden to between 52% and 88%, among the highest for any consumer product. The GST Council, led by Finance Minister Nirmala Sitharaman, has kept this structure in place until at least the end of 2025, when the remaining liabilities under the pandemic-era compensation loan scheme are cleared. Industry observers say the proposed new levy would effectively extend the current tax burden beyond the cess period, maintaining both revenue stability for states and fiscal pressure on tobacco manufacturers.
