Context
The Central Excise (Amendment) Bill, 2025 was introduced in the Lok Sabha on December 1, 2025, by the Ministry of Finance. The Bill seeks to amend the Central Excise Act, 1944, to raise the excise duty on tobacco products.
Background:
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- Central excise duties on many items were repealed with the introduction of the Goods and Services Tax (GST) in 2017, except for certain items such as tobacco and tobacco products.
- Along with GST, GST compensation cess was also introduced on products such as tobacco to compensate states for revenue loss due to the introduction of GST.
- Thus, tobacco and tobacco products are currently subject to GST, compensation cess, and central excise duty. The compensation cess is planned to be discontinued.
- Central excise duties on many items were repealed with the introduction of the Goods and Services Tax (GST) in 2017, except for certain items such as tobacco and tobacco products.
About the Central Excise (Amendment) Bill:
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- The Bill proposes to amend the Central Excise Act, 1944 to enable fresh central excise duties on tobacco and related products once the GST‑compensation cess ends.
- At the same time, the government has introduced a companion measure, the Health Security and National Security Cess Bill, 2025, which seeks to levy a new cess on pan masala manufacturing - and potentially other designated “sin” goods - to further secure fiscal revenues.
- The Bill proposes to amend the Central Excise Act, 1944 to enable fresh central excise duties on tobacco and related products once the GST‑compensation cess ends.
Its key provisions include:
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- Increase in Excise Duty on Tobacco: Unmanufactured tobacco, such as sun-cured tobacco leaves, will see duty rise from 64% to 70%.
- Increase on Cigarettes: Current excise duties on cigarettes range between Rs 200 and Rs 735 per thousand; under the Bill, this will be increased to Rs 2,700–11,000 per thousand.
- Other Tobacco Products: Chewing tobacco duty will rise from 25% to 100%; hookah and gudaku tobacco from 25% to 40%; and smoking mixtures for pipes and cigarettes from 60% to 325%.
- Increase in Excise Duty on Tobacco: Unmanufactured tobacco, such as sun-cured tobacco leaves, will see duty rise from 64% to 70%.
The Bill ensures that the discontinuation of GST compensation cess does not reduce the effective tax collection on tobacco, maintaining revenue neutrality.
Implications:
1. Revenue Generation: The increase in excise duty will safeguard central government revenue, especially in the absence of GST compensation cess.
2. Health Policy Alignment: Higher taxation on tobacco aligns with public health goals by discouraging consumption of tobacco products.
3. State Revenues: As GST on tobacco continues to be collected, states will also maintain their revenue streams, supporting fiscal federalism.
4. Market Impact: Substantial increase in duties, particularly on cigarettes and smoking mixtures, may lead to higher prices, impacting consumption patterns and potentially encouraging illicit trade if enforcement is weak.
Conclusion:
The Central Excise (Amendment) Bill, 2025 is a strategic measure to maintain revenue neutrality following the discontinuation of the GST compensation cess. By increasing excise duties on tobacco and tobacco products, the Bill not only protects government revenues but also supports public health objectives. However, careful monitoring and strict enforcement will be necessary to prevent evasion and ensure that the fiscal and health benefits of the amendments are realized effectively.
