Proposed Health Security and National Security Cess Bill, 2025
The Finance Minister, introduced the Health Security and National Security Cess Bill, 2025 in the Lok Sabha, emphasizing its dual objectives: curbing health risks and funding national security investments.
Key Objectives
- Health Risks Mitigation:
- The cess targets demerit goods like pan masala, known for their harmful effects.
- By increasing costs, the cess aims to reduce consumption and act as a deterrent.
- National Security Funding:
- Revenue from the cess will fund critical national priorities without affecting essential goods consumption.
- Part of the revenue will be shared with states for health-related initiatives.
Revenue Sharing with States
The revenue from the cess will be shared with states to support health-related schemes, contributing to awareness programs and other health initiatives.
Impact on Goods and Services Tax (GST)
- GST Structure:
- The cess does not weaken the GST framework as pan masala is already categorized as a demerit good, attracting a maximum rate of 40% (GST plus compensation cess).
- Taxation on Tobacco and Pan Masala:
- Pan masala is not excisable but attracts 28% GST and a compensation cess, aligning with the GST framework.
- Cigarettes, however, are subject to both GST and excise duty.
Central Excise (Amendment) Bill, 2025
The Central Excise (Amendment) Bill, 2025, passed by Parliament, addresses transitions as the GST compensation cess approaches its expiration. Tobacco products will return to the Centre’s excise framework but remain taxed at the highest GST rate of 40%.
Tax Incidence on Tobacco
- Current and Future Taxation:
- The combined incidence on cigarettes previously ranged from 53% to 88% but now aligns with a 40% GST ceiling.
- India's tax incidence on tobacco is approximately 53% of retail price, below the WHO benchmark of 75%.
- Impact on Beedi Workers:
- Beedis will return to excise tax, but the incidence will not change due to the socio-economic status of beedi workers.
