Mumbai, February 21:  The Indian government is exploring an increase in the Goods and Services Tax (GST) on tobacco products once the compensation cess expires in March 2026. Currently, these products are taxed at 28% under GST, with an additional cess and other levies, bringing the total tax rate to 53%.

Officials suggest raising the GST rate to 40%—the highest permissible rate—and imposing an extra excise duty to maintain stable tax revenue from tobacco products,  The Economic Times reported. This move aims to prevent a revenue shortfall after the compensation cess ends without introducing a new cess. A GST Council panel of ministers is reviewing the issue, and a final decision based on their recommendations is expected. Vada Pav To Become Costlier? Price of Mumbai’s Favourite Street Food May Rise As BMC Mandates Bakeries To Switch to LPG or Electricity.

Sin Goods Tax on Tobacco Products

Tobacco products are classified as "sin goods" and face multiple taxes, but the overall tax rate of 53% remains lower than the 75% rate recommended by the World Health Organisation. In FY 2022-23, tobacco products contributed Rs 72,788 crore to government revenue. Union Budget 2025 Impact: Smartphones and EVs To Get Cheaper; TVs, Fabrics To Get Costlier.

While one alternative is replacing the compensation cess with a "health cess," this proposal has faced opposition from both the central government and some states. India’s tobacco industry remains a major contributor to the economy, with cigarettes generating over 80% of tobacco tax revenue despite accounting for only 10-15% of total consumption.

(The above story first appeared on LatestLY on Feb 21, 2025 04:37 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).