290% Cess On Tobacco Products Planned Under GST; Govt. Will Soon Impose 'Fat Tax' On Junk Foods

Two major business and economics related news has surfaced, which has the power and capability to shake up the entire structure of FMCG and food industry.

After a recent meeting of GST Council, it was revealed that Finance Ministry is planning to impose a cess of up to 290% on all tobacco products, and 139% on all Pan Masala products. This means that under GST, cess on tobacco products cannot be made more than 290% of the actual MRP and 139% on Pan Masala.

This roughly translates to the capping of cess on tobacco products to Rs 4170 per 1000 sticks or 290 percent ad valorem.

Krishna Byre Gowda, a GST Council member representing Karnataka has assured that this massive cess on tobacco products doesn't mean that the related tax will also increase, or in other words, he has assured that the price of tobacco products won't increase substantially after the introduction of this cess.

But this also means that Govt. can and will increase the price of tobacco products as and when required, based on this cess.

Krishna said, "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",

Interestingly, this cess on tobacco products doesn't cover bidis, which constitute lion's share of overall tobacco sales in India. And the reason is that bidi is the most preferred tobacco product of the poor, below-BPL citizens, which also constitute the majority of voter's database. And a lot of poor people are into the production of bidis as well.

Kerala Finance Minister, Isaac Thomas made it clear, as he said, "If a cess is imposed on bidis, many people would lose their livelihood. The Council should make sure it does not put any cess on bidis,"

This tobacco cess and cess on luxury cars and soft-drinks have been structured to create a corpus of Rs 50,000 crore, which would be used to compensate states which are losing on tax revenues due to GST regime. Another interesting fact: Govt. is yet to define what exactly a luxury car or product is.

We had earlier shared the tax-slabs which have been proposed under GST regime.