As Finance Minister Nirmala Sitharaman on Monday introduced two Bills in the Lok Sabha to tax ‘sin’ goods, businesses will once again have to recalibrate their pricing models and compliance frameworks — even as experts say the overall tax incidence on these products is unlikely to rise significantly.
The Finance Minister tabled The Central Excise (Amendment) Bill, 2025 and The Health Security and National Security Cess Bill, 2025 to replace the GST Compensation Cess levied on tobacco and pan masala.
According to the Bill’s statement of objects and reasons, the Central Excise (Amendment) Bill aims to provide the government with fiscal space to increase excise duty rates on tobacco and tobacco products once the GST compensation cess ends, in order to protect tax incidence. The Bill proposes a 70% cess on most tobacco products, over and above the existing 40% GST rate. Cigarettes will attract a cess ranging from ₹2,700 to ₹11,000 per 1,000 sticks, depending on length.
“While this aligns perfectly with long-term public health goals by making products less accessible, the industry must now urgently assess the pricing and supply chain implications of this comprehensive overhaul,” said Saurabh Agarwal, Tax Partner, EY India.
The Health Security and National Security Cess Bill proposes a capacity-based cess on machines installed or processes used to manufacture specified goods such as pan masala, whether manually or through hybrid methods. Manufacturers will have to declare production capacity and pay tax accordingly.
This model is intended to enhance compliance, simplify monitoring, and ensure stable revenue flows, experts said. Even small-scale or hand-made producers will come under regulatory oversight. However, they cautioned that stricter compliance burdens could make it difficult for smaller tobacco product manufacturers to compete with larger players.
“For businesses, this translates into higher fixed costs, enhanced compliance requirements, and the need for meticulous planning and documentation. The Bill is likely to reshape the sector — favouring larger, compliant players over smaller or informal producers — while ensuring sustained revenue and aligning taxation with broader social and policy goals,” said Sivakumar Ramjee, Executive Director – Indirect Tax, Nangia Group.
There will also be tighter enforcement, including audits, inspections, and penalties for non-compliance to curb tax evasion. Meanwhile, Mahesh Jaising, Partner & Indirect Tax Leader, Deloitte India, said that the total tax incidence would largely remain unchanged for tobacco and pan masala, despite the levy restructuring.