Starting February 1, the government is implementing a revised tax system for cigarettes, tobacco products, and pan masala to enhance regulation and maintain high taxes on these items known as ‘sin goods.’ Cigarettes and tobacco products will now incur an additional excise duty, while pan masala will face a new health and national security cess. These new taxes will replace the previous 28% GST rate and compensation cess that have been in effect since the introduction of GST in July 2017.
The government is also rolling out a new Maximum Retail Price (MRP)-based valuation mechanism for various tobacco products like chewing tobacco, filter khaini, jarda scented tobacco, and gutkha. Under this system, the GST will be determined based on the retail price mentioned on the packaging rather than the factory value. This adjustment is anticipated to curb tax evasion and enhance revenue collection.
Furthermore, pan masala manufacturers will need to undergo fresh registration under the new health and national security cess law commencing February 1. They are mandated to install CCTV cameras covering all packing machines and retain video recordings for a minimum of two years. Additionally, companies must report to excise authorities the number of operational machines in their facilities and their production capacity. If any machine remains inactive for 15 consecutive days, manufacturers can claim a reduction in excise duty for that period.
Despite these modifications, the government has ensured that the overall tax burden on pan masala, which includes a 40% GST, will hover around the current level of 88%.
