In a major update ahead of the 56th GST Council meeting, sources told CNBC Awaaz that the government is considering a significant shift in how taxes are levied on tobacco and cigarette products. The proposal under discussion recommends that GST on these sin goods be levied at 40% on the Maximum Retail Price (MRP) instead of the current base price or dealer price structure.
What’s changing?
At present, cigarettes and other tobacco items attract GST plus compensation cess, applied on the base or dealer price. Under the new proposal, the tax base would shift to MRP, effectively raising the overall tax burden on the industry.
Additionally, the government is reportedly exploring the imposition of special duties or additional excise on top of the proposed 40% GST. The move is aimed at maintaining current revenue levels, especially as GST 2.0 reforms announced by Prime Minister Narendra Modi seek to eliminate the compensation cess.
States demand higher share
According to an Economic Times report, several states have demanded a “significant share” in the supplementary taxation from tobacco products to offset immediate revenue losses that could arise from the proposed changes.
What’s next?
The GST Council is expected to deliberate and decide on the new taxation framework during its upcoming session. If implemented, this shift could reshape the pricing and taxation of tobacco products across India, with far-reaching implications for both consumers and manufacturers.
