Despite health concerns, India’s thriving tobacco industry is grappling with the impact of the Goods and Services Tax (GST). As the world’s second-largest tobacco consumer with over 275 million users, the industry holds considerable economic weight. This article clarifies the intricacies of GST on tobacco and tobacco products, including cigarettes, outlining the GST rates and additional charges applicable.
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GST on Tobacco and Tobacco products
India’s Goods and Services Tax (GST) imposes the maximum rate of 28% on tobacco and tobacco products, including cigarettes, chewing tobacco (pan masala), cigars, cigarillos, and hookahs. This 28% GST rate is supplemented by compensatory charges under GST laws and central excise duties as per Central Excise regulations.
Duties and Cess on Cigarettes
| Types of Cigarettes | Excise Duty (per 1000 sticks) | NCCD (per 1000 sticks) | Compensation Cess |
|---|---|---|---|
|
Cigarettes up to 65mm in length |
₹5 |
₹230 |
5% + ₹2076 |
|
Cigarettes between 65mm and 70mm |
₹5 |
₹290 |
5% + ₹3668 |
|
Filter cigarettes up to 65mm in length |
₹5 |
₹510 |
5% + ₹2076 |
|
Filter cigarettes between 65mm and 70mm |
₹5 |
₹510 |
5% + ₹2747 |
|
Filter cigarettes between 70mm and 75mm |
₹5 |
₹630 |
5% + ₹3668 |
|
Other cigarettes containing tobacco |
₹10 |
₹850 |
36% + ₹4170 |
|
Cigarettes of tobacco substitutes |
₹5 |
₹910 |
₹4,006 |
From February 2, 2023, as per Budget 2023, tobacco and tobacco products, particularly cigarettes between 65mm and 75mm in length, will be subject to a Goods and Services Tax (GST) of 28%.
Specific tobacco products have different excise duty rates: 0.5% for chewing tobacco, snuff, and tobacco extracts; and 1% for cigarillos made from tobacco substitutes.
For tobacco products, excise duty and National Calamity Contingency Duty (NCCD) are calculated based on the reduced value (if reductions are granted under the Central Excise Act). However, GST and compensation cess are calculated on the transaction value, which includes excise duty and NCCD. It’s important to note that there are no reductions for tobacco products under GST
Read also: Leave Travel Allowance (LTA): 7 Main Rules for Save The Tax
How to calculate GST on Cigarettes?
| Particulars | Amount |
|---|---|
|
Cost of manufacturing for 100 cigarettes (non-filter, up to 65mm in length) |
₹1,000.00 |
|
Add: Excise duty @0.5% on abated value ((1000 x 45%) x 0.5%) |
₹2.30 |
|
Add: NCCD @230 per 1000 cigarettes (2.3% on abated value) ((1000 x 45%) x 2.3%) |
₹10.40 |
|
Taxable Value for GST |
₹1,012.70 |
|
Add: GST @ 28% |
₹283.50 |
|
Add: Compensation cess @5% + 2076 per thousand cigarettes ((1025.3 x 5%)+20.76) |
₹258.20 |
|
Total sale price |
₹1,554.40 |
Impact of GST on the Tobacco Industry
Tobacco in India faces substantial taxes, encompassing duties like Central Excise, National Calamity Fund, GST, and compensation cess. These taxes contribute to government revenue.
Nevertheless, they fall below the World Health Organization’s recommended minimum of 75% for tobacco products. Calls for higher taxes on tobacco manufacturers have intensified, prompting the government to repeatedly increase taxes on cigarettes and other tobacco products. In the recent 2023 Budget, the National Calamity Fund tax rate was proposed to be raised by 16%.
It is important to note that this list is not exhaustive, but it provides a snapshot of the significant levies in play.
Conclusion
Indian tobacco businesses, with their vast consumer base, encounter the intricate regulations of GST and other taxes. It is essential for stakeholders and consumers to comprehend how GST affects tobacco items because it significantly influences industry dynamics and users’ decisions. The intricate tax system reveals that GST on tobacco and tobacco products is a major factor shaping this multi-billion dollar industry’s present and future.
Frequently Asked Questions (FAQ)
The Goods and Services Tax (GST) on tobacco in India is set at 28%.
Under GST system, tobacco has become taxable. GST has standardized tobacco taxes, placing them under the highest tax rate of 28%. Before GST, India’s complex tobacco tax system was found to be ineffective in curbing tobacco use. By streamlining taxes, GST aims to simplify the tobacco taxation process.