The Goods and Services Tax Council on Monday increased the cess on cigarettes. The fixed tax will be raised between Rs 485 and Rs 792 per thousand sticks from midnight Monday. Cigarette prices had dropped after GST was implemented on July 1. The GST is a uniform tax that has subsumed all older indirect taxes.
The peak GST rate of 28% and an ad valorem cess – which is levied in proportion to the estimated value of the goods – of 5% will remain, Finance Minister Arun Jaitley said after an emergency meeting with the council on Monday.
“It was noted in the first 15 days of the GST implementation that when the rate on cigarettes was translated, the cascading effect of taxes was not factored in,” Jaitley explained. “We noted that cigarette companies were getting windfall profit from a reduction in cigarette prices,” the Business Standard reported.
The hike will give the government Rs 5,000 crore more in revenue, which would have otherwise gone to the manufacturers. “Now, the total revenue gain from this is estimated to be about Rs 5,000 crore per annum,” Jaitley said, according to The Economic Times. “This gain, otherwise, would have either resulted in reduction of cigarette prices or would have gone as balance profit to the cigarette companies.”
The GST Council will meet next in the first week of August to review the progress of the new tax regime’s implementation, Jaitley said.