Finance Minister Nirmala Sitharaman on Thursday said the proposed Health and National Security Cess will apply exclusively to demerit goods such as pan masala, creating a “dedicated and predictable resource stream” for health and national security initiatives.
What did Sitharaman say?
Sitharaman stated that the cess is intended to discourage consumption of products associated with significant health risks. It will be imposed over and above GST and calculated on the basis of production capacity in pan masala manufacturing units. “The liability will differ for every factory depending on their capacity,” she said, adding that this structure is required because excise duty cannot be levied on pan masala.
Pan masala will attract the maximum GST rate of 40%, and the introduction of the cess will not affect GST revenues. Part of the cess collection will be shared with states to support health-awareness programmes and related schemes.
Bill follows duty on tobacco
The Bill accompanies a recently passed amendment enabling the levy of excise duty on tobacco, replacing the soon-to-expire GST compensation cess framework, which was extended to repay the Rs 2.69 lakh crore Covid-period loan to states.
At present, pan masala, tobacco and related products attract 28% GST plus a variable compensation cess. Once the compensation cess lapses, the GST rate will rise to 40%. Additionally, the excise duty will be levied on tobacco, and the Health and National Security Cess on pan masala.