Smokers may have to spend more on cigarettes soon as the Indian government is considering an increase in Goods and Services Tax (GST) on tobacco products. The move is aimed at discouraging smoking and increasing tax revenue from the sector.

Why Cigarette Prices Are Likely to Rise.?

A report from ‘The Economic Times (ET)’ suggests that the government may revise the compensation cess on tobacco products. Currently cigarettes and tobacco items attract a 28% GST along with an additional compensation cess making the total tax burden 53%. If the GST is increased to 40% cigarette prices will rise significantly.

A ministerial panel under the GST Council is currently reviewing the matter. Their final recommendation will determine the next steps for taxation on cigarettes and other tobacco-based products.

Government's Plan to Curb Tobacco Use

The main reason behind the proposed tax hike is to discourage smoking. According to the World Health Organisation (WHO) the ideal tax rate on tobacco products should be at least 75% to effectively reduce consumption. Currently India's total tax rate on cigarettes is lower than this threshold.

In 2022-23 the government collected a staggering Rs 72,788 crore in tax revenue from the tobacco industry. By increasing GST the government aims to not only boost revenue but also limit cigarette consumption.

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How Much Tax Is Already Charged on Cigarettes.?

- Cigarettes and tobacco products currently attract 5% compensation cess.

- Additional specific duties range from Rs 2,076 to Rs 4,170 per 1,000 cigarettes, depending on factors like length, filter type and aroma.

- In the past a ministerial group led by Odisha’s former Finance Minister Niranjan Pujari was assigned to review GST on tobacco.

- The final decision on GST revision will be taken by the GST Council after reviewing the panel’s report.

What’s Next.?

If the GST on cigarettes is raised, smokers will have to pay significantly higher prices. Additionally new excise duties on tobacco products could be introduced. The final decision is expected soon after the government reviews the expert panel’s recommendations.