How a GST hike on tobacco could impact the industry
Published in Mint newspapers | February 2025
"Exceptional taxes on sin goods such as cigarettes and other tobacco products not only discourage their use but are also a large source of revenue for the government. Recent reports suggest there are plans to increase the GST on cigarette and tobacco products to 40% from the current 28% after the compensation tax ends next year. The government plans to keep the excise duty. This will ensure that the government does not lose a significant revenue source especially when it has announced tax sops for the middle class in the Budget that will likely hit its coffers.
Currently, apart from GST, the government levies excise duty, National Calamity Contingent Duty (NCCD) and compensation cess on these goods. Compensation cess is a large part of taxes levied on cigarettes. Inasmuch, despite GST on cigarettes being 28%, the effective tax on cigarettes amounts to 53% while the same on chewing tobacco bulks up to 64%.
We will have to wait for the clarity on excise duty applicable to understand the end impact. If the excise duty remains what it is now, there will not be much negative impact on the industry even if GST is increased to 40%. However, if excise duty is also tweaked upwards, companies can face some demand or margin contraction." - Neha Shrivastava, Associate Partner, Indirect Tax.