GST Council decides to hike cess on cigarettes

NEW DELHI: The GST Council today raised the cess on cigarettes to take away an estimated Rs 5,000 crore annual “windfall” manufacturers could have reaped from lower GST rates, Finance Minister Arun Jaitley said today.

However, cigarette prices will not change as a result of the increased cess which would be effective from midnight tonight.

This was the first meeting of the Council after the Goods and Services Tax (GST) was rolled out on July 1.

Briefing reporters after an emergency meeting of the Council was held through video conferencing, Jaitley said it had previously fixed a peak GST rate of 28 per cent on cigarettes.

On top of it, a cess was levied to create a corpus for compensating states for any loss of revenue from implementing the GST, which subsumed over a dozen central and state levies.

The cess was made up of 5 per cent ad valorem rate and a fixed per thousand stick rate based on length of cigarettes.

The peak GST rate of 28 per cent as also the 5 per cent ad valorem cess will continue but the fixed cess has been hiked in the range of Rs 485 and 792 per thousand sticks, he said.

The hike has been necessitated as the GST rate together with cess was found to be lower than the combined incidence of central excise, state VAT and other levies put together.

“Now the total revenue gain of this is estimated to be about Rs 5,000 crore per annum and this gain otherwise would have either resulted in reduction of cigarette prices or would have gone as balance profit to the cigarette companies,” Jaitley said.

The cess which was earlier fixed by the GST Council had resulted in a windfall profit for cigarette companies.

“There were two things that the cigarette companies could do — either reduce the price of cigarette, which because of the health consequences of cigarettes is not a very desirable thing. So they probably would have resorted to the other option of transferring this windfall profits to their balance sheet. This was not the intention of the Council,” he said.

The GST Council had on May 18 fixed 28 per cent as the top rate for cigarettes. A 5 per cent ad valorem cess was levied on top of it and Rs 1,591 per thousand sticks as fixed cess on both filter and non-filter cigarettes of not exceeding 65 mm length.

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