Cess for certain types of cigarettes to be as high as 31%

The Goods and Services Tax (GST) Council, during its 19th meeting on Monday, has decided to increase the cess applied on cigarettes by as much as 31% in certain categories, effective from July 18.

The cess on these items is over and above the 28% GST rate applied to them. This was the only item on the agenda for the meeting.

“In respect of cigarettes, the Fitment Committee had recommended that in line with the weighted average VAT rate [28.7%] the GST rate on cigarettes may be kept at 28%,” the official statement said. “In addition, Compensation Cess may be levied on cigarettes at rates equal to 1.05 times the specific excise duty rates [net of NCCD].

The new cess rates on cigarettes set by the #GST Council over and above the GST rate of 28%. @the_hindu pic.twitter.com/jXq0UGJ2gl — TCA Sharad Raghavan (@SharadRaghavan) July 17, 2017

“However, this method of calibrating the compensation cess did not take into consideration the cascading of taxes [that is in the earlier regime VAT being charged on value inclusive of the excise duty],” the statement added. “As a result, the total tax incidence on cigarettes in the GST regime has come down, as compared to the total tax in the pre-GST regime.”

The statement said that while any reduction in the tax incidence on items of mass consumption would be welcome, the same would be unacceptable in case of demerit goods like cigarettes.

Therefore, it decided to increase the compensation cess on all cigarettes. For example, non-filtered cigarettes not exceeding 65mm in length will see the cess levied on them increase from the current 5% + Rs.1591 per thousand to 5% + Rs.2076 per thousand. The filtered variants of cigarettes of this size will witness the same change in the cess levied.