Parliament Passes Excise Duty Hike on Tobacco Products, Citing Public Health and Revenue Needs – Obnews

India’s Parliament has approved the Central Excise (Amendment) Bill, 2025, clearing the way for an increase in excise duties on cigarettes and other tobacco products once the GST compensation cess expires. The Rajya Sabha returned the bill to the Lok Sabha on Thursday, finalizing a key fiscal and public health measure aimed at curbing tobacco consumption while ensuring revenue stability for the states.

Finance Minister Nirmala Sitharaman, responding to the debate in the upper house, emphasized that the revised duties are not a cess and will therefore be shared with state governments in accordance with Finance Commission guidelines. She stressed repeatedly that the changes are expected to strengthen state finances while aligning national tobacco taxation with global health benchmarks.

Addressing concerns about tobacco farmers and beedi workers, the minister said the bill would not harm their livelihoods. She pointed to existing crop diversification plans designed to shift farmers toward alternative cultivation, noting that more than one million acres have already transitioned to other crops between 2017 and 2022. She also highlighted labour welfare initiatives that support nearly 50 million registered beedi workers across India.

Sitharaman reminded Parliament that when GST was introduced in 2017, the Centre agreed to compensate states whose revenues dipped below an assured level. She said the Centre had retained only a very small portion of excise duties on select goods, directing the rest toward GST compensation. Tobacco products, which fall under the highest GST slab and carry an additional compensation cess, still fail to meet the World Health Organization’s recommended tax burden.

India’s current total tax incidence on cigarettes is roughly 53 percent of the retail price, well short of the WHO benchmark of 75 percent. The revised excise duties, Sitharaman said, are aimed at reducing affordability and supporting national health objectives by discouraging tobacco use.

With the bill already passed by the Lok Sabha a day earlier, its approval marks a significant policy shift that will shape India’s tobacco taxation framework beyond the GST compensation period.