Govt. imposes highest GST Cess limit on tobacco

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The government has set a cap on the maximum rate of GST compensation cess for tobacco products such as pan masala and cigarettes.

So, This article explores the impact of the government’s decision for the GST Cess limit on tobacco and Pan Masala.

Government Caps GST Cess Limit on Tobacco and Pan Masala

As part of the amendments to the Finance Bill, 2023, the Indian government has introduced a cap on the maximum rate of GST compensation cess that can be levied on pan masala, cigarettes, and other tobacco products.

The cap is linked to the retail sale price of these products.

Previously, the cess was charged at 135% ad valorem.

However, from now onwards,  the maximum GST compensation cess rate for pan masala will be 51% of the retail sale price per unit. 

The tobacco products’ rate has been fixed at Rs 4,170 per thousand sticks plus 290% ad valorem or 100% of the retail sale price per unit.

The new rate will be charged over and above the highest GST rate of 28%.

Amendment in Finance Bill Caps Maximum GST Compensation Cess on Pan Masala and Tobacco Products

The recent amendment in the Finance Bill has introduced changes in schedule-I of the GST compensation cess Act.

Thus, it has imposed highest GST Cess Limit on Tobacco and Pan Masala.

However, tax experts have pointed out that a notification from the GST council is required.

It is required to determine the exact compensation cess applicable under the new cap.

This development is expected to have implications for the tobacco and pan masala industries, as well as for consumers.

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GST Council Approves Panel Report on Tackling Tax Evasion in Pan Masala & Gutkha Businesses

In February, the 49th GST Council Meeting, led by Union Finance Minister Nirmala Sitharaman and comprising state counterparts, gave approval to a report submitted by a panel of state finance ministers on measures to curb tax evasion in the pan masala and gutkha industries.

Consequently, the Group of Ministers (GoM) suggested changing the way compensation cess is charged on pan masala and chewing tobacco.

Instead of basing the cess on the product’s value (ad valorem), they recommended using a fixed amount per unit (specific rate).

Thus, this move is aimed at addressing issues related to tax evasion, which have been a cause for concern in these businesses.

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