Cigarettes to cost more as GST Council hikes cess rates

Gladys Abbott
July 18, 2017

In an urgent meeting of the Goods and Services Tax (GST) Council on Monday, the first after the GST rollout and 19th in total, the Centre and the states chose to increase the cess on cigarettes to remove the anomaly of lower effective tax incidence that had followed after the recent scrapping of additional excise duty on cigarettes. While the 28 per cent GST rate and 5 per cent ad valorem on tobacco product remain, the additional cess will change as per the length of the cigarettes, Union Finance Minister Arun Jaitley told reporters after the GST Council meeting through a video conferencing. Filter cigarettes of 65 to 70 mm length would now attract a 5 per cent plus Rs 2,747 per thousand stick cess as compared to present 5 per cent plus Rs 2,126.

The GST Council will meet next in the first week of August to review the progress of the new tax regime's implementation, Jaitley said.

Jaitley said the anomaly in fixing the rates of cigarettes by the GST Council had brought down the total tax incidence on cigarettes post GST.

The statement said 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.

Cigarettes

Pratik Jain, partner and leader of the indirect tax practice at PwC India, said that more than the tactical move to increase the cess, the GST Council meeting had shown its inclination and flexibility to take quick decisions.

"In respect of cigarettes, the Fitment Committee had recommended that in line with the weighted average Value-Added Tax rate (28.7%) the GST rate on cigarettes may be kept at 28%", the official statement said.

Up to 65 mm length: The price will increase by Rs 0.485 per cigarette.

For other cigarettes the ad valorem has been increased to 36 per cent plus Rs 4,170 per 1,000 units. "The central and state governments are addressing the queries being raised", said Jaitley.

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