GST on Tobacco – Rates, Cess & Impact on Pricing

Let’s say Sunil is a chain-smoker and also a dedicated software engineer. His monthly salary is ₹ 40,000, out of which he spends at least ₹ 1,020 on a cigarette pack of ₹ 340, in a week.

The chain-smoker smokes a minimum of 4 cigarettes a day. Let’s see how he does this for a week:

He buys 10 packs for ₹340. Smoking 8 cigarettes in two days, then 4 daily, he repeats this for four days. On Saturday, he relaxes and smokes 6 for the weekend.

One day, he calculates spending ₹1,020 weekly, ₹4,080 monthly, and around ₹2,12,160 yearly on cigarettes. Smoking 30 weekly and 

120 monthly, he realises 28% GST is included, sparking his curiosity about GST rates on tobacco products.

This blog explains the GST rates on Tobacco.

Tobacco – Booming Sector

For example, Sunil discovers that the booming tobacco industry thrives on high demand, with over 253 million users in India. Tobacco products currently attract 28% GST, but projections suggest it could rise to 40%. 

The WHO even recommends a 75% tax. Additionally, Sunil learns that the compensation cess on tobacco goods also varies based on type and quantity.

Let’s say a pack of 10 cigarettes costs ₹ 150.

The GST Rate is 28%

Compensation charge is ₹ 25

So, the GST rate is ₹ 42. Now the total cost of the product is ₹ 217 (₹ 42 GST + ₹ 25 Cess + ₹ 150 base amount).

GST Rates for Tobacco Goods

The following table enumerates the GST rates, which Sunil finds very interesting.

Example:

Sunil imagines that if he manufactures pan masala, which contains tobacco, then he needs to add the following charges:

GST 28%

GST Cess 204%

Let’s consider that Sunil’s pan masala’s base price is ₹ 15, without tax

He adds 28% GST, which is ₹ 4.2

Again, he adds 2024% GST Cess, which is ₹ 30.6

The total cost of the product is ₹ 49.8, which is rounded off as ₹ 50.

Duties and Cess on Cigarettes

Imagine if Sunil starts his own cigarette company to the cigarettes up to 65mm in length, then this is how the calculation works for him:

Let’s say he fixes ₹ 25,000 as the base price for 1,000 cigarettes, then he adds the following calculations:

Excise Duty: ₹ 5

NCCD: ₹ 230

Compression Cess: 5% of the base amount + ₹ 2,076 per 1,000 cigarettes

So 5% of ₹ 1,250. Now, the consolidated calculation is:

= ₹ 25,000 + ₹ 5 + ₹ 230 + ₹ 1,250 + 2,076

= ₹ 28,561

So Sunil fixes the price of ₹ 28,561 per 1,000 cigarettes. For a pack of 20 cigarettes, the cost is ₹ 571.22.

Why Tobacco Should be Taxed Heavily?

There are mainly two reasons that make the government impose high taxes on tobacco products:

1. High Revenue: For instance, the government made a revenue of ₹ 72,788 crore on these products in the fiscal year of 2022-2023. So there is a possibility of increasing the taxes and prices.

2. Discouragement: Smoking cigarettes can cause cancer and many diseases. So discourage this habit, the government increases the price. Sunil can fix ₹ 571.22 as the price for a pack of 20 cigarettes.

Conclusion  

Though cigarette smoking is harmful, the demand for these products is still higher. However, the movement takes drastic steps to discourage the smoking habit, as well as concentrates on increasing its revenue from these goods. People like Sunil should calculate the overall amount of tobacco goods and cigarettes before paying their bill.

FAQs

1. Is it true that the government discourages cigarette smoking, though it has good revenue?

Yes, the government discourages this habit, though there is more revenue.

2. What is the current GST rate for cigarettes?

It is 28 %.

3. Are there changes in cess charges in tobacco manufacturing?

Yes, there are changes in the cess charges, which the manufacturer should adhere it.

4.  What is the NCCD charge for Cigarettes up to 65mm in length?

It is ₹ 230.

5. What is the excise duty for Filter cigarettes between 65mm and 70 mm in length?

It is ₹ 5.