December 4th 2025.
In a session of the Lok Sabha on Thursday, Finance Minister Nirmala Sitharaman addressed the proposed Health and National Security Cess, providing clarity on its scope and purpose. Contrary to some concerns, she emphasized that the cess will only apply to non-essential goods, such as pan masala, and not affect the prices of essential commodities. The main objective of this Bill is to establish a consistent and dependable source of funding for key sectors like health and national security. Sitharaman also highlighted that the cess will serve as a deterrent against products that pose major health risks.
The minister assured that the revenue collected from the cess will be designated for health-related schemes and awareness programs. She also clarified that the implementation of this cess will not impact GST collections, as GST is applied at the consumer stage. This move is not only a targeted effort to combat harmful goods, but also a step towards a more sustainable and equitable tax system.
Sitharaman went on to explain the mechanism of the cess, stating that it would be levied in addition to GST and would vary based on the production capacity of pan masala factories. This was chosen as excise duty cannot be imposed on pan masala and GST alone does not cover the manufacturing side. Currently, pan masala, tobacco, and related items attract a 28% GST along with a compensation cess. However, with the compensation cess coming to an end, the GST rate on these goods will increase to the maximum 40%.
In addition to the cess, the Bill proposes higher excise duties on tobacco products. Unmanufactured tobacco will now have a 60-70% excise duty, while cigars and cheroots will have a duty of 25% or ₹5,000 per 1,000 sticks, whichever is higher. For cigarettes without filters and up to 65mm in length, the duty will be ₹2,700 per 1,000 sticks, and for those over 65mm and up to 70mm, the duty will be ₹4,500 per 1,000 sticks. The government argues that these measures are necessary to properly tax tobacco products while also relying on GST for consumption.
The Finance Minister emphasized that the cess serves a dual purpose of generating revenue and promoting public health. By increasing the financial burden on harmful products while protecting essential goods, the government aims to reduce consumption and prioritize national health and security. However, the success of this move will depend on effective implementation, particularly in states like Maharashtra, where the impact could be substantial.
Speaking of Maharashtra, a state that has been struggling with high levels of tobacco and pan masala consumption despite bans, the cess could bring in additional funds for the health sector. Public health experts in the state have long advocated for more stable financing for awareness campaigns, cancer care, and de-addiction efforts. The government's commitment to sharing a portion of the cess revenue could offer some relief. However, officials in Maharashtra have raised concerns about monitoring production units, especially smaller or illegal factories. With the new cess linked to machine capacity, enforcement agencies may face pressure to ensure accurate reporting and prevent evasion, similar to challenges faced in the past with gutkha trade.
In conclusion, the proposed Health and National Security Cess is not just a revenue-generating tool, but also a measure with a social mission. It aims to deter the use of harmful products while supporting essential goods and promoting national health and security. While it may bring in additional funds for the health sector and curb consumption, it will be crucial for the government to effectively implement and monitor its impact, especially in states like Maharashtra.
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