Finance Minister Nirmala Sitharaman on Friday, December 5, strongly defended the Health Security and National Security Cess Bill, 2025 in the Lok Sabha, asserting that the new levy is limited strictly to demerit goods such as tobacco and pan masala and is crucial for sustaining India's defence preparedness.
During the debate, the Finance Minister clarified that the cess will not be expanded to other categories of goods, countering concerns raised by Opposition members. She reiterated that the objective is focused and transparent: the proceeds will be used exclusively for public health and national security.
Cess Needed for Defence & Public Health Funding
FM Sitharaman emphasised the government's obligation to maintain a stable revenue flow to meet defence and health-related priorities.
"I need to give money for defence. Collecting revenue and making sure the nation is well is the duty of every government," she said.
She noted that it has taken years to rebuild the Army's operational preparedness, and therefore, steady funding is essential. She also clarified that while money raised through taxation is fungible, it enables the government to channel resources into critical sectors like defence infrastructure.
Parliament's Authority on Taxation Remains Intact
Responding to concerns about the legislative process, the Finance Minister asserted that Parliament retains full control over any cess imposed by the government.
"A notification to levy a cess is laid in Parliament; nothing goes beyond Parliament," she said.
Sitharaman also referenced Supreme Court rulings to reaffirm that taxation powers rest squarely with the legislature, including the authority to impose cesses.
Tobacco & Pan Masala Sector Under Focus
Explaining the technical side of the bill, Sitharaman said the tobacco industry remains highly prone to tax evasion, making the current 40% GST rate insufficient. She defended the production capacity-based levy, stating it is not a new concept but an existing mechanism used to ensure better compliance.
"Actual production was difficult to tax; machine-based duty is not new," she said.
On pan masala, the Minister highlighted the industry's flexibility in introducing new products and variants, which requires the government to retain regulatory agility.
Currently, the effective tax rate on pan masala stands at 88%, but once the GST compensation cess expires, GST will be capped at 40%, creating fears of reduced tax incidence.
"We can't allow it to become cheaper and also lose revenue," she stated. She made it clear that the government has no intention to interfere with the GST Council's domain, adding:
"There is absolutely no intent to step into the domain of GST, which is with the GST Council."
She also clarified that tobacco advertisements will not attract the new cess.
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