The Government of India has announced a significant fiscal measure impacting the tobacco industry, introducing an additional excise duty on various tobacco products. This move, confirmed through a recent notification, is set to take effect from February 2, 2025.
Details of the New Excise Duty Structure
The Central Board of Indirect Taxes and Customs (CBIC) issued the official notification detailing the levy. The additional excise duty is imposed under Section 136 of the Finance Act, 2023. It applies to a range of manufactured tobacco items, excluding those already subject to the National Calamity Contingent Duty (NCCD).
The duty structure is specific. For cigarettes containing tobacco, the additional duty is set at 10 per cent ad valorem. This means the tax is calculated as a percentage of the product's value. For other tobacco products like bidis and cigars, the duty is fixed at 5 per cent ad valorem.
Rationale and Expected Outcomes
This decision follows a recommendation made by the GST Council during its 53rd meeting held on June 22, 2024. The primary objective behind this levy is to generate additional revenue for the central government. By imposing this duty, the Centre aims to tap into the consumption of tobacco products, which have an inelastic demand to a large extent.
Industry experts anticipate that this additional fiscal burden will likely be passed on to the end consumer. Consequently, retail prices of cigarettes, bidis, and similar products are expected to rise across the country. This aligns with broader public health goals, as increased prices can potentially deter consumption, especially among price-sensitive groups.
Implications for the Tobacco Industry and Consumers
The notification clarifies that this additional duty is separate from the Goods and Services Tax (GST) and the existing NCCD. Manufacturers and distributors will need to factor in this new cost from the effective date. The move could have the following consequences:
- Higher Retail Prices: Consumers should prepare for increased costs for their tobacco purchases.
- Revenue Boost: The government expects a steady stream of revenue from this sector.
- Market Dynamics: The price hike might influence consumer preferences and brand choices within the tobacco market.
This policy intervention reflects the government's dual approach of leveraging sin taxes for fiscal gains while indirectly supporting public health objectives. The industry's response and the actual impact on consumption patterns will be closely watched in the coming months following the February 2 implementation.
