GST council increases cess applied on cigarettes by as much as 31%

18 Jul 2017 Evaluate

In view of the reduction in tax on the demerit good under the new indirect tax regime, the Goods and Services Tax (GST) Council, at its 19th meeting headed by Finance Minister Arun Jaitley, decided to increase the cess applied on certain types of cigarettes by as much as 31%. 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. The increase in cess would bring in Rs 5,000 crore of additional tax revenue which otherwise would have gone to the manufacturers. However, cigarette prices will not change as a result of the increased cess which became effective from July 18.

As per the official statement ‘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%”. However, this method of calibrating the compensation cess did not take into consideration the cascading of taxes. As a result, the total tax incidence on cigarettes in GST regime has come down, as compared to the total tax in pre-GST regime. Hence, it decided to increase the compensation cess on all cigarettes.

While the peak GST rate of 28 percent stays and so does 5 percent ad valorem cess on top of it, the cess on cigarettes will now be higher by Rs 485-792 per thousand sticks for different varieties of the commodity. The new cess rate for non-filter and filter cigarettes of length not exceeding 65 mm would be 5 percent plus Rs 2,076 per thousand sticks. For non-filter cigarettes of 65 mm to 70 mm length, the rate would be 5 percent plus Rs 3,668 per thousand sticks as against 5 percent plus Rs 2,876 currently.

Moreover, filter cigarettes of 65 to 70 mm length would now attract a 5 percent plus Rs 2,747 per thousand stick cess as compared to present 5 percent plus Rs 2,126. The same for 70 mm to 75 mm cigarettes would be 5 percent plus Rs 3,668 per thousand sticks. For other cigarettes, the cess would be 36 percent plus Rs 4,170 per thousand sticks as compared to 5 percent plus Rs 4,170 currently. Meanwhile, the all-powerful GST Council will meet in first week of August to review the progress of the implementation of GST, which was rolled out on 1 July.

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