Cigarettes to cost more as GST Council hikes cess rates

Judith Bessette
Julho 18, 2017

GST impact on cigarettes: Union Finance Ministry Arun Jaitley on Monday announced that GST Council has made a decision to hike cess on cigarettes to take away the windfall manufacturers were making.

"The GST Council has chose to hike cess on cigarettes to take the windfall manufacturers were making", Finance Minister Arun Jaitley said after a review meeting.

Accordingly, the tax burden on cigarettes will go up by Rs4.8-7.9 per 10 sticks, depending on their length and whether or not they have filters.

"It was noted in the first 15 days of the GST implementation that when the rate on cigarettes was translated, the cascading effect of taxes was not factored in", Jaitley explained.

Sources said cigarettes were the only item of discussion in Monday's GST Council meeting which reviewed the roll out. "In addition, Compensation Cess may be levied on cigarettes at rates equal to 1.05 times the specific excise duty rates (net of NCCD)".

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Jaitley said while any reduction in tax incidence on items of mass consumption would be welcome, the same would be unacceptable in the case of demerit goods like cigarettes. The tax was increased after an uproar from anti-tobacco and several health groups.

Earlier, Tobacco Institute of India (TII) had said that the GST is an unique opportunity for the government to address the growing illegal cigarettes trade in the country. The meeting of the Council was originally slated to happen on August 5.

"So far, the functioning has been smooth".

ITC shares fell almost 3 percent intraday Monday on fears of likely increase in cess on cigarettes.

"28% tax on cigarettes remains, 5% ad valorem remains and the cess changes as per the length of the cigarettes", the finance minister said. "This itself indicates an expansion of tax base", Jaitley said.

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