Relevant Context:
When GST started in 2017, the government introduced the GST Compensation Cess (for a time period of 5 years) to help initially support states whenever their GST revenue fell short. It was levied on goods like tobacco products, pan masala, coal, and luxury cars/SUVs, which could bear an extra tax without affecting essential consumption. Because this new cess was added on top, the older central excise duty on tobacco was reduced so that the total tax on tobacco wouldn’t become too high.

It was only meant to exist until 2022, but during COVID the government had to borrow from this fund to support state revenues. Once those loans are fully repaid, the law requires the cess to stop. Now, that compensation cess is about to end.

If the cess ends and excise duty stays low, tobacco will suddenly become much cheaper, reducing government revenue, and making harmful products more affordable. So, the government is raising excise duty now to make sure that when the cess disappears, the overall tax on tobacco stays roughly the same.

Provisions of the Bill:

Excise Duty on all tobacco products was increased. The Bill updates rates across all tobacco categories. Exact duties on specific tobacco products include:

1. Raw tobacco duties: 64% to 70%
2. Finished and manufactured tobacco products: Varying based on products in the range of 2x- 10x of the original.
3. Cigarettes: Broadly a 10x increase, from ₹200–₹735 to ₹2,700–₹11,000.
4. Chewing tobacco, snuff-like products, and mixtures: From a 25–60% duty to a 100–325% duty.
5. Hookah/gudaku tobacco: A 50–60% rise in duties
6. Nicotine or tobacco products which are meant for inhalation without burning: Brought to a uniform 100% duty rate

Policy Implications:

1. Public Health Protection: Keeping overall taxes at the same level ensures tobacco does not become cheaper once the compensation cess ends. This keeps smoking and smokeless tobacco products less affordable, which is one of the most effective ways to discourage consumption, especially among young people.
   For you: Harmful products don’t suddenly become cheaper or more accessible.
   
2. Stable Revenue for Governments: Tobacco is a major revenue source. Without this revision, the end of the cess would create a sudden drop in tax collections. The updated excise rates protect both central and state revenues.
   For you: Governments retain funds for public services without turning to new or higher taxes on everyday items.
   
3. Amends Low-Tax Loopholes: Before the amendment, some tobacco products were taxed much lower than others (certain chewing tobaccos, smoking mixtures, specific cigarette sizes). The updated rates align these variations so companies cannot shift to cheaper categories to avoid higher taxes.
   For you: Manufacturers can’t introduce “low-tax” tobacco alternatives that end up being cheaper and more widely consumed.