GST Impact on Tobacco Sector : Post 56th GST Council Meeting

The Article represents GST Impact on Tobacco Sector Post 56th GST Council Meeting. The 56th GST Council Meeting (September 3–4, 2025) introduced landmark changes in India’s indirect tax system, with a strong focus on tobacco and pan masala products. These reforms aim to simplify the GST structure while addressing health and revenue concerns.

1. Structural Reforms

Two-Slab GST System: Only 5% and 18% regular rates going forward.
Special 40% Sin Tax: Applicable to pan masala, gutkha, cigarettes, chewing tobacco, and other demerit goods.
Phased Implementation:
- From 22nd Sept 2025 → Services and most goods will shift to new GST rates.
- Tobacco products & pan masala → Will continue with current cess structure until compensation cess obligations are cleared

2. GST Rate Changes on Tobacco Products

Pan Masala: 28% → 40%
Cigarettes & Cigars: 28% → 40%
Unmanufactured Tobacco & Refuse: 28% → 40%
Other Manufactured Tobacco (extracts, essence, etc.): 28% → 40%
Bidi: 28% → 18%
Tendu Leaves & Indian Katha: 18% → 5%

3. Compensation Cess Shift

Since April 2023, cess is based on Retail Sale Price (RSP) instead of ad valorem value.
Objective: Better enforcement, anti-evasion, and uniform application across states.
Examples:
- Pan Masala: 60% (earlier) → 0.32R per unit
- Chewing Tobacco (without lime): 160% (earlier) → 0.56R per unit

4. Price & Tax Burden Impact

Cigarettes: Effective price increases significantly (e.g., ₹68.57 → ₹83.33 per pack).
Pan Masala: Interestingly, overall price impact shows a slight reduction due to cess adjustment (₹10 → ₹8.85).
Net effect → Higher burden on cigarettes, moderate impact on pan masala

5. Revenue Implications

Central Govt: Currently earns ~₹50,000 crore annually from tobacco taxes.
Post-Reform: 40% GST may increase revenue if consumption levels remain stable.
States: Will benefit through revenue sharing once cess is phased out, ensuring more predictable inflows

6. Compliance & Administration