The panel responsible for evaluating tax adjustments within the Goods and Services Tax (GST) Council has, in preparation for the upcoming October 7th meeting, voiced its disapproval of the industry’s plea to reduce taxes on tobacco products. Specifically, the industry had requested a standardized additional compensation cess on cigarettes, a compensation cess on bidis, an additional compensation cess on smokeless tobacco products, and potentially lower compensation cess rates on cigarette sticks measuring up to 70 mm.
However, the Council’s Fitment committee has recommended maintaining the existing tax structure, effectively rejecting the industry’s proposals. In the realm of tobacco and its associated products, the decision regarding Compensation Cess rates was made in alignment with the weighted average Value Added Tax (VAT) rate of 28.7%. Consequently, the GST rate for cigarettes remains at 28%. Bidis, on the other hand, are subject to a GST rate of 28%, but no Compensation Cess is imposed upon them.
It is worth noting that in the Union Budget for the fiscal year 2024, the National Calamity Contingent Duty (NCCD) rate for specified cigarettes experienced an approximate 16% increase, effective as of February 2, 2023. This adjustment in the NCCD rate has implications for the taxation of certain cigarette products.