The Government of India on Monday i.e., 1st December 2025 tabled two major tax reform bills in Parliament:
The Central Excise (Amendment) Bill, 2025 - which will replace the GST compensation cess, which is currently levied on all tobacco products like cigarette, chewing tobacco, cigars, hookahs, zarda and scented tobacco.
The Health Security and National Security Cess Bill, 2025, seeks to levy cess on the production of specified goods like pan masala.
Objective
To maintain or increase tax incidence on "sin goods" such as cigarettes, pan masala and gutkha after the GST compensation cess lapses, ensuring stable revenue and promoting public health.
Central Excise Amendment Bill 2025: Shifting to Specific Excise Duties
India is shifting tobacco taxes back to central excise that means cigarettes and similar products will now have a fixed tax per 1,000 sticks.
Reported Excise Duty Range Expected
Small cigarettes: about Rs.2,700 per 1,000 sticks
Long/filtered cigarettes: Rs.4,500 – Rs.5,200 per 1,000 sticks
Other unmanufactured tobacco items proposes to levy of 60-70 per cent and 100 per cent on nicotine and inhalation products.
Health Security and National Security Cess Bill, 2025
This bill introduces a new cess initially on pan masala and gutkha. It may be extended to other "sin goods" via further notifications.
This is a big structural shift. Instead of:
- Value-based taxation the cess will be - linked to manufacturing capacity i.e., number and speed of machines.
For example - if a factory can produce 100kg/day, tax is on 100kg regardless of output).
How These Bills Fit into the GST + Excise Framework?
Tobacco will still have 28% GST.
The old compensation cess is being replaced by a new excise duty (for tobacco) and a new cess (for pan masala).
This means the overall tax will stay high or may even increase.
The government may also move “sin goods” to a 40% GST slab, which could push prices up even more.
Impact on States
Earlier, the GST compensation cess was partially funded to states for their GST revenue loss.
But now, with more tax shifting to central excise and new cesses, the central government will collect a larger share directly.
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