GST on Cigarettes, Pan Masala and Gutkha - Impact of GST Rate on the Tobacco Industry

The tobacco industry is booming, despite the ill effects that smoking and tobacco have on the human body. Many reports have been released by WHO claiming that India is harbouring the world’s highest incidence of mouth cancer. We are the second largest consumer of tobacco, having an astonishing 275 million users! But how does GST affect this multi-million dollar industry? In this article, let us understand all about GST on cigarettes, the GST rate on tobacco products, and other duties and cess imposed on tobacco products.

Impact of GST on the Tobacco Industry

The tobacco industry attracts Central Excise duty, National Calamity Contingent Duty (NCCD), GST, and compensation cess as it is a sin good. In fact, a lot of revenue is generated from the sale of tobacco for the Indian government. However, the tax burden levied on the Indian tobacco industry is not enough, as per the recommendation of the WHO for a minimum tax burden of 75% on all tobacco-related products. 

Hence, there has been an increasing demand for a higher tax burden on tobacco manufacturers. The Indian government has constantly been increasing the rate of taxes imposed on cigarettes and tobacco products. In line with this, in Budget 2023, it was proposed that the NCCD rate be revised upwards by 16%. 

Let’s take a look at the list of duties and taxes imposed on cigarettes and other tobacco products. Please note that the list of tobacco products in this article is not exhaustive.

GST Rate on Cigarettes and Tobacco products

The Indian government has imposed the highest GST rate on cigarettes and tobacco products at 28%. This includes products such as pan masala, cigars, cigarillos, hookah, and other similar products. In addition to this, there is a compensation cess levied under the GST law as well as duties imposed under the Central Excise law. 

Duties and Cesses on Cigarettes and Tobacco products 

A compensation cess is levied under the GST law on cigarettes and tobacco products at the same falls under the category of sin goods. Likewise, under Central Excise laws, there is excise duty and National Calamity Contingent Duty (NCCD) levied. 

The table below lists the most recent rates of excise duty, NCCD, and compensation cess charged on the manufacture of cigarettes and tobacco products. 

(In rupees per one thousand sticks)

*This rate is valid on cigarettes in length exceeding 65 millimetres but up to 75 millimetres.

**Length of the filter is included in the length of the cigarette, being 11mm or the actual length of the filter, whichever is more.

^#NCCD rates are in force from 02-02-2023, as announced in Budget 2023.

The excise duty on chewing tobacco, preparations containing chewing tobacco, snuff, hukkah or gudaku tobacco, tobacco extracts and essence, and jarda-scented tobacco is 0.5%. The excise duty on cigarillos of tobacco substitutes is 1%.

It is important to note that Central Excise and NCCD are calculated on the abated value (where abatements are given under the Central Excise Act), whereas GST and compensation cess are computed on the transaction value (after including excise duty and NCCD). No abatement is given for tobacco products under the GST law. 

How to calculate GST on cigarettes?

Let’s understand how to calculate GST on cigarettes with the help of an example: 

Please note that the rates of taxes and duties, as well as the abatement given to manufacturers of tobacco products, can change depending on the government’s policies.

Conclusion:

GST has made cigarettes and tobacco products only marginally more expensive than in the pre-GST era. Tobacco products still continue to be affordable in India. Despite the latest proposal in Budget 2023 of hiking the NCCD by almost 16%, it still only impacts the selling price of cigarettes by a few rupees.