Higher cess to be used to compensate states
The cess varied from Rs 2,126 to Rs 4,170 for cigarettes of different lengths. But this rate was lower than the pre-GST tax incidence
New Delhi: The GST Council in an emergency meeting on Monday hiked cess on cigarettes to ensure that overall taxes on them does not fall in the GST regime.
GST Council meeting on tax on tobacco was held through video conference showing the pressure on the government to act on the cigarettes issue. Tax on cigarettes was the only agenda for the GST Council meet.
“While any reduction in tax incidence on items of mass consumption would be welcome, the same would be unacceptable in case of demerit goods like cigarettes,” said finance ministry.
GST Council has increased fixed component of cess on cigarettes category by Rs 485 to Rs 792 per thousand sticks of cigarettes.
This is over an above present GST of 28 per cent, 5 per cent ad valorem cess and a fixed cess on cigarettes. The fixed cess varies depending on length and whether cigarettes are filter or non-filter.
The cess will be used by Centre to compensate states for any loss of revenue due to roll-out of GST. “Now the total revenue gain of this is estimated to be about Rs 5,000 crore per annum and this gain otherwise would have either resulted in reduction of cigarette prices or would have gone as balance profit to the cigarette companies,” said finance minister Arun Jaitley.