GST Rate on the Tobacco Industry

In July 2017, India implemented the goods and services tax (GST) system as a single indirect tax system that would replace all other indirect taxes and impose a single consumption-based tax on a variety of supplies of goods and services. The GST tax rate is broken down into five slabs, each with a different rate for various goods or services: 0%, 5%, 12%, 18%, and 28%.

Tobacco products are one of the most heavily taxed commodities in India, as well as a significant source of revenue for the Indian government.

Let's investigate the GST analysis for the Tobacco Industry.

Tobacco Product GST Rate

The highest GST slab rate of 28% applies to the supply of tobacco products, including cigarettes, khaini, pan masala, jarda, and chewing tobacco.

Except for tobacco leaves, all tobacco products are subject to a 28% GST.

A reverse charge means that the recipient of the supply pays the tax directly to the government, and the GST rate for tobacco leaves is 5%.

Tobacco products are subject to GST cess and excise duty.

Taxes on tobacco products

The manufacturing of tobacco products is subject to the following excise duties:

• Bidi – 22%

• Cigarette - 64%

• Products for chewing: 81%

GST Tax on tobacco products

Tobacco products are subject to an additional cess to the standard 28% GST.

• Unprocessed tobacco with a brand name (without a lime tube): 71%

• Unprocessed tobacco has a brand name: 65%

• Tobacco refuge with a brand name: 61%

• Chewing tobacco without a lime tube - 160%

• Chewing tobacco with a lime tube: 142%

• Khaini filter: 160%

• Tobacco with a Jarda scent: 160%

• Pan masala: 40%

• Pan masala with a Gutkha tobacco content: 204%

The GST Council decided to change the cigarette cess rates at its 19th meeting. The following are the new rates:

• Cigarettes (Tobacco refuse, bearing a brand name): 61%

• Cigarettes without a filter (Not exceeding 65 mm) 5% +INR 2076 per thousand.

• Cigarettes without a filter (Exceeding 65 mm but not 70 mm): 5% + INR 3668 per 1,000

• Smoke with a filter (Not exceeding 65 mm): 5% +INR 2076 rupees per thousand.

• smoke with a filter (Exceeding 65 mm but not 70 mm): 5% +INR 2747 per 1,000

• smoke with a filter (Exceeding 70 mm but not 75 mm): 5% +INR 3668 per 1,000

• Others: 36% +INR 4170 for every thousand

Other tobacco taxation:

• Smoking tobacco and cheroots: 21% or Rs. 4170 per thousand, whichever is higher.

• Cigarillos: whichever is higher, 21% or Rs. 4170 per thousand.

• Substitute cigarettes cost Rs. 4006 per thousand.

• Tobacco substitute cigarillos: 12.5% or Rs. 4,006 per thousand, whichever is higher.

• Other: The greater of 12.5% or Rs. 4,006 per thousand.

• Gudaku or hookah tobacco with a brand name: 72%

• Hookah tobacco/ chilam or "gudaku" - 17%

• Other tobacco products without a brand name: 11%

• Smoking blends for cigarettes and pipes - 290%

• Other tobacco products with a brand name: 49%

• Tobacco that has been "reconstituted" or "homogenized" and bears a brand name: 72%

• Chewing tobacco-containing products: 72%

• Snuff - 72%

• Snuff-containing preparations: 72%

Impact of GST on Demand, Business, and Tobacco Industry

The high rate of GST and cess on tobacco products aim to boost government revenue while monitoring demand. However, the current tax rate on these products is still below what the WHO recommends (tax rate) on all tobacco products, which is 75%.