The Central government has capped the maximum rate of Goods and Services Tax (GST) compensation cess that would be levied on pan masala, cigarettes and other variety of tobacco and linked the highest rate to their retail sale price.
The capping of the cess rate was brought in as part of the amendments to the Finance Bill, 2023, which was passed by the Lok Sabha last Friday. As per the amendment, the maximum GST compensation cess rate for pan masala will be 51 % of the retail sale price per unit. In the current regime, the cess is charged at 135 % ad valorem.
The rate for tobacco has been fixed at Rs 4,170 per thousand sticks plus 290 % ad valorem or 100 % of the retail sale price per unit. So far, the highest rate was Rs 4,170 per thousand sticks plus 290 % ad valorem. The cess is levied over and above the highest Goods and Services Tax (GST) rate of 28 %. Changes in schedule-I of GST compensation cess Act, brought in via amendment in Finance Bill, has capped the maximum cess that can be charged on Pan masala and tobacco products.
Tax experts said to ascertain the exact compensation cess applicable following this change, the GST council will need to issue a notification. AMRG & Associates Senior Partner Rajat Mohan said the latest amendment in the GST Compensation cess law is an enabler that will permit the GST council to introduce applicable tax rates through a notification. "This change marks a significant shift in taxation policy for pan masala and tobacco-supplying companies. Though this policy will arrest tax evasion to a great extent in this sector, it still may prove to be a regressive plan from an economic standpoint," AMRG & Associates Senior Partner said.
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