The Goods and Services Tax (GST) Council on 17 July 2017 increased the Compensation Cess rate on cigarettes to make the total tax incidence on cigarettes in GST regime at par with the total tax incidence in pre-GST regime.
The move will raise the prices of cigarettes that fell under the GST regime.
• As per the recommendations of the GST Council, the Compensation Cess rates under Section 8 (2) of the Goods and Services Tax (Compensation to States) Act, 2017, was notified on Intra-State or Inter-State supply of the specified goods including cigarettes.
• In respect of cigarettes, the Fitment Committee recommended that in line with the weighted average VAT rate of 28.7 per cent, the GST rate on cigarettes may be kept at 28 per cent.
• Additionally, the Compensation Cess shall be levied on cigarettes at rates equal to 1.05 times the Specific Excise Duty Rates.
• However, this method of calibrating the Compensation Cess did not take into consideration the cascade of taxes. As a result, the total tax incidence on cigarettes in GST regime came down.
• On this, GST Council said that it will welcome any reduction in tax incidence on items of mass consumption, but the same will be unacceptable in case of demerit goods like cigarettes.
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