The Tobacco Tax “Reset”
Context
- The Union has passed the Central Excise (Amendment) Act, 2025 and the Health & National Security Cess Act, 2025.
- These laws restructure tobacco taxation to replace the temporary GST Compensation Cess which expires on February 1, 2026.
UPSC Prelims Cheat Sheet
Constitutional Source
- Article 246A: Grants concurrent power to both Centre and States for GST
- Entry 84 (Union List): Gives the Centre exclusive power to levy Excise Duty on tobacco (tobacco is among the few items under both GST and Excise)
- Article 270: Proceeds of GST and Excise are shared with States (Divisible Pool)
- Article 271: Proceeds of the National Security Cess go solely to the Consolidated Fund of India and are not shared with States
Key Structural Changes
- Cigarettes & smokeless tobacco
- Permanent 40% GST slab
- High specific excise duty (tax per 1,000 sticks)
- Beedis
- Moved to lower 18% GST slab (from 28%) to protect workers
- Still subject to excise
- GST Compensation Cess
- Officially ceased (abolished) from February 1, 2026
Administrative Reform
- Capacity-based levy for unorganised sectors (pan masala)
- Tax calculated on machine speed (pouches per minute) instead of self-declared sales
- Objective: curb tax evasion
Policy Goal
- Align with WHO guidelines
- Ensure tobacco prices rise faster than income growth (negative affordability)
