Cigarette Prices Set to Skyrocket: Excise Duty Hike to Impact India's 100 Million Smokers from February 1

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In a move aimed at discouraging tobacco use, the Indian government has introduced a new excise duty on cigarettes, ranging from ₹2,050 to ₹8,500 per 1,000 sticks. This decision is expected to significantly increase prices for the country's approximately 100 million smokers, sending shockwaves in the tobacco industry. The new duty, which will take effect from February 1, will be in addition to a 40% Goods and Services Tax (GST) on tobacco products and cigarettes. The duty varies according to cigarette length and replaces the compensation cess being scrapped as part of a broader GST restructuring. According to analysts, the new levies will result in a 22% to 28% increase in overall costs for 75-85mm cigarettes. Cigarettes longer than 75mm, which account for roughly 16% of ITC's volumes, are likely to see price increases of ₹2-3 per stick. The finance ministry has also notified additional excise duties on other tobacco products, including a 91% duty on gutkha, 82% on chewing tobacco, and 82% on jarda scented tobacco. A health and national security cess will be levied on the production capacity of pan masala manufacturing units, while bidis will face the new levies on top of an 18% GST rate. The government has introduced a novel capacity-based levy system for manufacturers of chewing tobacco, jarda scented tobacco, and gutkha, making it impossible for manufacturers to underreport production. Stringent surveillance requirements have been mandated to enforce the new levy, including the installation of functional CCTV systems covering all packing machine areas. The finance ministry stated that the taxation framework aims to keep cigarettes "sufficiently expensive" to discourage tobacco use and limit its impact. The proceeds from excise duty will be redistributed among states in accordance with the Finance Commission's recommendations. The All-India Tobacco Growers' Association has demanded that part of the new levies be utilised for farmer welfare. The new duties replace the compensation cess, which will cease to exist from February 1 after the repayment of a ₹2.69 trillion loan taken by the Centre to compensate states for GST revenue loss during Covid.