New Tax on Tobacco Products: Cigarettes and paan masala will become costlier from Feb 1; govt has hiked excise duty
New Tax on Tobacco Products: The central government is set to implement a new tax system on cigarettes, tobacco products, and paan masala from Sunday, February 1. The aim is to maintain strict control over these products and keep the tax levels high on these 'sin goods,' which are generally considered harmful to health.
New health cess and a national security cess will also be imposed
Following the central government's decision, an additional excise duty will now be levied on cigarettes and other tobacco products. A new health cess and a national security cess will also be imposed on paan masala.
This new tax system will replace the old system, which levied a 28 percent GST along with a compensation cess on these products. This compensation cess had been in effect since the implementation of GST in July 2017.
MRP-based valuation system
The government is also introducing an MRP-based valuation system for certain tobacco products such as chewing tobacco, filter khaini, zarda (flavored tobacco), and gutkha, where GST will now be calculated based on the printed retail price (MRP) on the packet instead of the factory price.
Companies manufacturing pan masala will have to re-register
The government expects that this step will reduce tax evasion and increase revenue. From February 1st, companies manufacturing pan masala will have to re-register under the new Health and National Security Cess law. These companies will have to install CCTV cameras covering all packing machines in their factories. The recordings from these cameras will have to be preserved for at least two years.
Companies will have to provide information about the number of machines installed in their factories and their production capacity to the excise officers. If a machine remains non-operational for 15 consecutive days, the companies will be able to claim exemption from excise duty for that period.
Total tax burden will not increase significantly
Even after all these changes, the government has ensured that the total tax burden on pan masala will not increase significantly. The total tax, including the 40 percent GST, will remain around the current 88 percent. Thus, the government aims to increase stringency on products harmful to health and further strengthen tax collection.