Cigarettes to cost more as GST Council hikes cess rates

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Union Finance Ministry Arun Jaitley on Monday announced that GST Council has chose to hike cess on cigarettes to take away the windfall manufacturers were making.

The Goods and Services Tax (GST) Council on Monday made a decision 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. "We noted that cigarette companies were getting windfall profit from a reduction in cigarette prices", the Business Standard reported. So they probably would have resorted to the other option of transferring this windfall profits to their balance sheet.

Earlier, Tobacco Institute of India (TII) had said that the GST is an unique opportunity for the government to address the growing illegal cigarettes trade in the country.

The GST Council meeting on Monday was the first after the roll-out of the indirect tax reform a fortnight ago.

However, cigarette manufacturing companies are yet to revise prices post GST.

The fixed tax will be raised between Rs 485 and Rs 792 per thousand sticks from midnight Monday.


Hence, it chose to increase the compensation cess on all cigarettes.

Over 65 mm but less than 70 mm: The price will increase by Rs 0.792 per cigarette.

"28% tax on cigarettes remains, 5% ad valorem remains and the cess changes as per the length of the cigarettes", the finance minister said.

The minister further said that over 70 lakh excise, service tax and VAT assessees have migrated to the GSTN portal and over 5 lakh new registrations have happened.

Asked if the tax rates on textiles would be reduced, Jaitley said the Council would consider all the suggestions. "I think it is a rate issue".

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.

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