Parliament Approves Excise Bill 2025: Sitharaman Confirms Higher Cigarette Duties Shared with States, Boosts Tobacco Tax to WHO Levels

 The Parliament on Thursday approved the Central Excise (Amendment) Bill, 2025 with the Rajya Sabha returning it to the Lok Sabha. 
Union Finance Minister Nirmala Sitharaman, while replying to the discussion in Rajya Sabha, said the higher duties on cigarettes will be shared with the states. "This is not a cess but excise duty. The amount will be redistributed to the States as per the Finance Commission's recommendations."

Talking about the impact on tobacco farmers and beedi workers, the Finance Minister said the Bill will not harm tobacco farmers and beedi workers."There are many schemes, including crop diversification scheme, to take care of tobacco farmers, to encourage them to move to other crops from tobacco," she said.

"Over 1.12 acres of land have been moved to other crops from 2017-18 to 2021-22. There are 49.82 lakh registered beedi workers in the country and the labour welfare schemes are being implemented across the country through labour welfare organisations," she said.

Highlighting GST, the Finance Minister said when GST was brought in 2017, it was agreed that States would be compensated if their revenue fell below an assured level. "The Central Government then said that just as a token, a very miniscule amount would be collected for those items under Central Excise, and the entire amount would be moved to GST compensation. Because these items were under the 28% slab, over and above that, Compensation Cess was also collected ensuring States' income was supplemented," she said in the Rajya Sabha.

"When GST was introduced, tax on tobacco and tobacco-related products, even with the cess, could not reach the benchmark set by WHO every year. As a result, the affordability index of tobacco products remains high, undermining public health goals," the Finance Minister said.

"India's total tax incidence on cigarettes is around 53% of the retail price," she said, whiel the benchmark rate of WHO is 75%. She added that the rate fixation has happened keeping WHO's benchmark and making sure that cigarettes are not affordable.

The Central Excise (Amendment) Bill, 2025 seeks to revise excise duties on tobacco and related products after the expiry of the GST compensation cess.
The Bill was passed in the Lok Sabha on Wednesday.