The​‍​‌‍​‍‌​‍​‌‍​‍‌ Centre has declined the idea of raising Goods and Services Tax (GST) rates on tobacco products. Instead, it will maintain the overall tax burden by introducing a new central levy.

The decision comes as the GST Compensation Cess regime nears its end, which has led the government to look for alternative sources of revenue from such high-yield sectors as tobacco.

A government representative at the rank of senior was quoted as saying that there is definitely no plan for a tobacco-related increase in the GST rate. Another official shared that the Centre's intention is to have the effective tax incidence kept at the same level even after the cessation of the compensation cess period.

At present, tobacco products are levied with the highest GST slab of 28 per cent along with a compensation cess that varies by the product type, thus, the total tax burden has gone beyond 40 per cent.

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The cess, which was introduced in 2017 in order to compensate for the revenue that the states lost after the implementation of GST, was originally going to be discontinued in 2022 but later extended to 2026 to facilitate repayment of pandemic-related loans.

The GST Council, with the Finance Minister Nirmala Sitharaman as its chair, has identified “sin goods” as a separate category — i.e., the goods that include cigarettes, bidis, chewing tobacco, and pan masala — which garner an effective tax rate of around 40–53 per cent.

Officials are optimistic that the government will not suffer a sizeable revenue loss. They point to improved consumption trends and stronger GST compliance as factors that will likely continue to support tax collections even after the introduction of the new ​‍​‌‍​‍‌​‍​‌‍​‍‌levy.