New Delhi: The Compensation Cess Rate applied on cigarettes has been increased by as much as 31% on specific categories of cigarettes, which though is not going to make buying cigarettes expensive. This change would be effective immediately from 18th July 2017 as declared by the Council of Goods and Services Tax (GST) during their 19th meeting.
This move has primarily been initiated to take away the jackpot that the cigarette manufacturers were reaping because of the inconsistencies that crawled in after the GST rates were implemented.
The compensation cess rate to be imposed is over and above the 28% GST that has been imposed on the cigarettes. The fixed cess has increased approximately between ₹ 485 and ₹ 792 per thousand sticks of various categories of cigarettes. The table below very well summarises the correction in the cess rates for different categories of cigarettes.
| Category of Cigarette | Present Rate (Before the revision) | Proposed Increase | New Rates | |
| Non Filter | ||||
| 1 | Less than 65mm | 5% + ₹ 1,591 per thousand | ₹ 485 per thousand | 5%+ ₹ 2,076 per thousand |
| 2 | Greater than 65mm but less than 70 mm | 5% + ₹ 2,876 per thousand | ₹ 792 per thousand | 5% + ₹ 3,668 per thousand |
| Filter | ||||
| 1 | Less than 65mm | 5% + ₹ 1,591 per thousand | ₹ 485 per thousand | 5% + ₹ 2,076 per thousand |
| 2 | Greater than 65mm but less than 70mm | 5% + ₹ 2,126 per thousand | ₹ 621 per thousand | 5% + ₹ 2,747 per thousand |
| 3 | Greater than 70mm but less than 75mm | 5%+ ₹ 2,876 per thousand | ₹ 792 per thousand | 5% + ₹ 3,668 per thousand |
| 4 | Others | 5% + ₹ 4,170 per thousand | 31% | 36%+ ₹ 4,170 per thousand |
For example, a pack of cigarettes (filter cigarette) exceeding 65mm but less than 70mm currently costs approximately 5% + ₹ 2,126 per thousand. The proposed increase has approximately been ₹ 621 and the new rates after the amendments would be 5%+ ₹ 2,747 per thousand.
The 28% GST on the cigarettes stays and so does the 5% ad valorem tax above the 28% GST. The fixed cess has increased per thousand sticks depending upon various categories of cigarettes.
The prices the consumers pay for the cigarettes would not change as the increased tax would only burn the earnings of the manufacturers. This increase in the cess rate is expected to bring as much as ₹ 5,000 as tax revenue to the government, which otherwise would have gone to the manufacturers’ pockets.
The cess rates before the increment of the cess today and after GST (1st July 2017) were a bit lower than the pre-GST tax era i.e. when the VAT prevailed as it did not take into consideration the earlier VAT that was being charged.
The manufacturers had the option to either pass the lower tax to the consumers or enjoy the windfall post GST. They chose the hindmost considering that cigarettes are not good for health, hence passing on the lower price to the customers would not be a good move. When the GST Council observed this gap, a meeting was set up where a unanimous decision was taken taking into consideration the views and votes of all the states.
Finance Minister Arun Jaitley called the migration of more than 70 lakh excise, service tax and VAT assesses to the GSTN portal (Goods and Services Tax Network) and over 5 lakh new registrations as the tax base expansion of India under GST.
