India's Parliament Approves Increased Tobacco Excise Duty Bill Aligning With WHO Standards

The Parliament of India has approved the Central Excise (Amendment) Bill, 2025, which aims to revise excise duties on tobacco products.

On Thursday, the Rajya Sabha returned the Central Excise (Amendment) Bill, 2025 to the Lok Sabha, completing the parliamentary approval process.

During the Rajya Sabha discussion, Union Finance Minister Nirmala Sitharaman clarified that the increased duties on cigarettes will be shared with states. She emphasized, "This is not a cess but excise duty. The amount will be redistributed to the States as per the Finance Commission's recommendations."

Addressing concerns about tobacco farmers and beedi workers, the Finance Minister assured that the Bill would not adversely affect them. She highlighted existing support mechanisms, stating, "There are many schemes, including crop diversification scheme, to take care of tobacco farmers, to encourage them to move to other crops from tobacco."

Sitharaman noted that from 2017-18 to 2021-22, over 1.12 acres of land previously used for tobacco cultivation have been transitioned to other crops. She also mentioned that there are 49.82 lakh registered beedi workers nationwide who benefit from labor welfare schemes implemented through labor welfare organizations.

Regarding GST implementation, the Finance Minister explained that when GST was introduced in 2017, the government agreed to compensate states if their revenue fell below assured levels. She elaborated, "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."

Sitharaman pointed out a significant public health aspect of the taxation, stating, "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."

She revealed that "India's total tax incidence on cigarettes is around 53% of the retail price," while the WHO benchmark is 75%. The Finance Minister assured that the rate fixation was determined with WHO's benchmark in mind and aimed at reducing cigarette affordability.

The Central Excise (Amendment) Bill, 2025 is designed to revise excise duties on tobacco and related products following the expiration of the GST compensation cess. The Bill had already passed in the Lok Sabha on Wednesday before receiving Rajya Sabha approval.