GST Impact: Compensation Cess Increased on Cigarettes, Smoking to Become Costlier

Jay Anderson
July 18, 2017

The Goods and Services Tax (GST) Council on Monday chose to increase the cess on cigarettes to offset a reduced tax revenue from the product following the 1 July rollout of the indirect tax reform. Union Finance Ministry Arun Jaitley on Monday announced that GST Council has made a decision to hike cess on cigarettes to take away the windfall manufacturers were making.

Up to 65 mm length: Increase of Rs 0.485 per cigarette. If the price of cigarettes come down, the government may not look at levying central excise duty but may consider increasing the cess on the demerit good.

The GST Council chose to meet on Monday, advancing its meeting scheduled for the first week of August, to address the issue.

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. This is mostly due to the drop of additional excise duty under GST regime.

After GST rollout, the fall in total tax on tobacco products, which is unsafe to health, is worrisome for the government.

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"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.

Prashant Deshpande, partner, Deloitte Haskins & Sells LLP, said implementation has so far been far smoother than anticipated, but the robustness of the information technology infrastructure supporting GST would be put to test at the time of filing of returns.

ITC shares fell almost 3 percent intraday Monday on fears of likely increase in cess on cigarettes.

For cigars, cheroots and cigarettes of tobacco or of tobacco substitutes, the cess would be 36 per cent plus Rs 4,170 per thousand sticks as compared to 5 per cent plus Rs 4,170 earlier.

Other reports by BadHub

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