New Bills to Reshape Tobacco and Pan Masala Taxation Landscape

The Indian government is set to introduce two bills in the Lok Sabha to revise the tax structure on tobacco and pan masala. One bill aims to replace the GST compensation cess on tobacco products with excise duty, while another introduces a new cess specifically for pan masala manufacturing.

On Monday, two bills are slated for introduction in the Lok Sabha, aimed at restructuring the taxation framework for tobacco and pan masala. The Central Excise Amendment Bill, 2025, seeks to substitute the current GST compensation cess on tobacco products with a new excise duty, providing the government with additional fiscal space.

Meanwhile, the Health Security se National Security Cess Bill, 2025, proposes a new levy on the manufacturing of pan masala to serve dual purposes: targeted public health funding and national security enhancement. These measures follow the phasing out of the compensation cess by the end of the year, aimed at maintaining tax incidence levels on these sin goods.

Introduced by Finance Minister Nirmala Sitharaman, these bills come after the GST Council's decision to extend the compensation cess on tobacco and pan masala until loans compensating GST revenue losses are repaid. Aspects of these bills ensure the consistent taxation of sin goods, preserving revenue post-cess cessation.

(With inputs from agencies.)