(MENAFN- Live Mint) NEW DELHI: Finance Minister Nirmala Sitharaman on Thursday said the current tobacco tax regime will remain in place until the end of the month, and that the overall tax burden on the tobacco industry will largely stay unchanged under the new framework.

Speaking during the Rajya Sabha debate on the Central Excise (Amendment) Bill, 2025, Sitharaman said the tax incidence on bidis will remain unchanged. The House passed the Bill after the discussion.

The minister noted that India's total tax on tobacco products remains below the World Health Organization's (WHO) benchmark and emphasized that the government does not plan to lower taxes on this so-called“sin good.”

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Under the new regime, tobacco products will attract the highest goods and services tax (GST) rate of 40%, up from the current 28%, she explained. With the GST compensation cess being replaced by the proposed Health Security and National Security cess, and the continued levy of central excise duty, the overall tax incidence on tobacco is expected to remain largely the same.

These items are not taxed in India at World Health Organisation's (WHO) benchmark taxation level, Sitharaman said.

“WHO has affordability index of tobacco products. They monitor the price range and point out where it is below the benchmark,” the minister said, adding that lower tax does not help to disincentivise tobacco consumption.“India's total tax incidence on tobacco is 53% of the retail price, which is substantially below the WHO benchmark of 75%.”

“There is no change in tax incidence on bidi. Considering that the people who roll bidi come from a lower economic strata in the country, we have made sure that nothing goes to hurt the livelihood of the bidi rollers,” she said, while also referring to the existing schemes for their welfare.

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“The current scheme of taxation will continue till the end of this month, which has been in place since 2017,” Sitharaman said.

Currently, the GST rate on bidi is 28%. Along with this, there is a National Calamity Contingency Duty (NCCD) of ₹1 per thousand in the case of hand-made bidis and ₹2 in the case of machine-rolled bidis,” the minister said.

There is also a very small element of excise duty now on bidis--5 paise per thousand units of hand-rolled bidis and 10 paise per thousand units for machine-rolled ones. In the new regime, bidi will shift to 18% GST from 28% and will also have the proposed cess in addition to a higher levy of excise duty but the overall tax incidence will stay the same.

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Earlier in the day, Lok Sabha debated the proposed Health Security se National Security cess. It is a strong deterrence against harmful consumption, said Daggumalla Prasad Rao, Telugu Desam Party MP from Andhra Pradesh. Cess-based funding for health has become crucial, he said.

Rao, however, said there are some concerns.

Because proceeds of cess are not shared with states, some political parties may argue that such cess is not in line with the federal fiscal structure, said Rao.

Sivakumar Ramjee, executive director-indirect tax at Nangia Group said that the new taxation introduces a structural shift in India's taxation of sin goods, particularly pan masala and tobacco. With the GST compensation cess set to expire once pandemic-era borrowings are repaid, the new framework ensures that high taxation on these products continues, said Ramjee.

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