New Delhi, India — December 5, 2025
In a significant move to safeguard public health and national security revenues, the Lok Sabha on December 5, 2025, passed the Central Excise (Amendment) Bill, 2025, which hikes central excise duties on tobacco products to offset the impending end of the GST compensation cess. This legislation, introduced by Union Finance Minister Nirmala Sitharaman earlier in the Winter Session, ensures the government maintains fiscal stability while targeting “sin goods” like cigarettes and chewing tobacco.
Key Provisions of the Central Excise Amendment Bill 2025
The bill amends the Central Excise Act, 1944, to replace the GST compensation cess—set to expire soon—with enhanced excise duties. Currently, tobacco products face a 28% GST plus varying compensation cess rates (e.g., 5% ad-valorem + ₹2,076–₹3,668 per 1,000 sticks for cigarettes). Post-passage, these will shift to a 40% GST slab for demerit goods, plus new excise levies ranging from ₹5,000 to ₹11,000 per 1,000 sticks for cigars, cheroots, and cigarettes.
According to the bill’s Statement of Objects and Reasons, the reforms were necessitated by the significant reduction in excise duties during the 2017 GST rollout, which allowed for cess without spiking prices. Now, with cess discontinuation, the amendment provides “fiscal space” to raise duties, protecting overall tax incidence and generating revenue for health initiatives. Sitharaman emphasized during Rajya Sabha discussions that 41% of the collections will be shared with states, countering Opposition claims of revenue centralization.
Health Security se National Security Cess Bill: Ongoing Debates
Complementing the excise bill, the Health Security se National Security Cess Bill, 2025 was tabled for further consideration and passage in the Lok Sabha today. This legislation introduces a production-based cess on pan masala manufacturing, targeting machines and processes to levy up to 40% on notified goods like gutkha and scented tobacco. The funds are earmarked for public health campaigns and national security expenditures, addressing gaps in the current consumption-based GST system.
Opposition MPs, including those from Congress and regional parties, raised concerns during Thursday’s Rajya Sabha session, highlighting the lack of explicit allocations for anti-tobacco programs. They warned of adverse impacts on tobacco farmers in states like Andhra Pradesh and Karnataka, and women laborers in beedi factories, whose incomes could drop by 10–15%. Sitharaman rebutted by citing WHO data: India’s cigarette prices have risen only half as fast as nominal incomes since 2017, underscoring the need for hikes to deter consumption and support farmer diversification.
Broader Implications for Economy and Public Health
These bills align with the GST Council’s September 2025 decision to rationalize slabs and discontinue compensation cess except for select sin goods. Economists predict minimal price shocks—cigarette packs may rise 5–8%—while bolstering revenues by ₹15,000–20,000 crore annually. The move supports PM Modi’s vision of reducing tobacco use, which claims over 1.3 million Indian lives yearly per WHO estimates.
- Revenue Neutrality: Maintains tax burden on tobacco and pan masala unchanged post-cess expiry.
- Health Focus: Potential to fund National Tobacco Control Programme expansions.
- State Sharing: Ensures equitable distribution to offset local farmer distress.
- Production Tax Shift: Closes loopholes in pan masala taxation based on output capacity.
As the Winter Session (December 1–19, 2025) progresses amid sloganeering over electoral rolls and Manipur issues, these fiscal reforms underscore the government’s push for “delivery over drama.” The Rajya Sabha returned the excise bill yesterday with recommendations, which the Lok Sabha accepted, paving the way for presidential assent soon.
Stakeholders in the tobacco industry brace for compliance, while health advocates hail the step as a win against non-communicable diseases. With global sin tax trends rising, India’s 2025 amendments position it as a leader in balancing revenue and wellness.
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