(MENAFN- KNN India) New Delhi, Dec 3 (KNN) The Lok Sabha on Wednesday passed the Central Excise (Amendment) Bill, 2025 to ensure that tax incidence on tobacco and related products is no lesser than what was maintained through GST compensation cess on them.

The Lower House passed the key Money Bill with voice vote.

The GST compensation cess on tobacco and tobacco related products would come to an end in a few weeks after the back-to-back loans taken by the central government to compensate states for revenue shortage during Covid pandemic are repaid completely. The Central Excise (Amendment) Bill, 2025 seeks to replace compensation cess with higher excise duties on tobacco products.

Replying to the discussion on the Central Excise (Amendment) Bill, 2025 in Lok Sabha, Union Finance Minister Nirmala Sitharaman said, "This is not a new law, this is not an additional tax or something that the Centre is taking away. Many MPs here observed that this is a Cess. This is not a Cess, this is Excise Duty. Excise duty existed before GST. The amount will be redistributed to the States as per the Finance Commission's recommendations."

While moving the Bill for introduction in the Lower House, Sitharaman explained that when goods and services tax (GST) was introduced in the central government gave up its right to impose excise duty on tobacco products in favour of the GST Council so that the Council could levy Compensation cess.

"Now, the Compensation cess time is over. From July 1, 2022 we don't any more give Compensation amount to states. Although we are collecting this cess after 2022 till now only because the GST Council had discussed and we borrowed money, back-to-back, gave it to states as though the compensation is being paid but paid with borrowed money," she said.

The Minister stated that since the GST law caps taxes at 40% the ultimate tax incidence on demerit goods like cigarettes has come down.

"So the popular narrative would be that is the government or GST Council, cognizant of the fact that cigarette or demerit good like tobacco, is being taxed lesser than what it was earlier. Is that the intention? To address that, in order that the incidence no longer is lesser than what it was during GST time with compensation cess we are bringing this excise (duty)," Sitharaman said.

With the introduction of the GST on 1st July, 2017, the Central Excise Act, 1944 was repealed except in respect of goods listed under Entry 84 of List I of the Seventh Schedule to the Constitution. This includes tobacco and tobacco products.

"With the levy of GST and compensation cess on tobacco and tobacco products, the rates of central excise duties were reduced significantly to allow for the levy of compensation cess without large impact on their tax incidence," said the statement of objects and reasons of the Central Excise (Amendment) Bill, 2025.

It further said that Compensation cess levied on tobacco and tobacco products will be discontinued once interest payment obligations and loan liabilities under the compensation cess account are completely discharged.

"In order to give the Government the fiscal space to increase the rate of central excise duty on tobacco and tobacco products so as to protect tax incidence it is imperative to amend the table in Section IV of the Fourth Schedule to the said Act," the statement of objects and reasons noted.

(KNN Bureau)

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