The GST Council on Thursday decided to cap the cess rate on tobacco products at Rs 4,170 per 1,000 sticks or 290 percent ad valorem. It also capped the cess on pan masala at 135 percent ad valorem. This cess would be levied on top of the GST to be imposed on these products.
While the cess rate seems exorbitant, Krishna Byre Gowda, a GST Council member representing Karnataka, clarified that the high cess would not mean an increase in the price of cigarettes.
“Compared to the current tax structure, the GST along with the cess will only alter the composition of the taxes on tobacco products, there will be no increase in tax rates for tobacco due to GST,” he said. Although, he added that there may be a variation in the taxation of tobacco from state to state.
The Council, for now, has deferred the decision on levying a cess on bidis due to a lack of consensus.
“If a cess is imposed on bidis, many people would lose their livelyhood. The Council should make sure it does not put any cess on bidis,” said Kerala Finance Minister, Isaac Thomas.
A large number of states would be against the idea of imposing a extra levy on bidis, added Thomas.
However, Gowda was of the opinion that bidis, which are mostly targeted to the poor, are very harmful to health and should also face a hefty cess.
“It’s not a poor man’s puff, but a poor man’s death wish,” he said.
The Council also put a cap of 15 percent on the cess for luxury cars and aerated drinks. The definition of a luxury car is yet to be defined by the Council.