In the FY 2024-25 budget, Finance Minister Nirmala Sitharaman did not announce any new sin tax. The 2023-24 Budget had increased taxes on cigarettes marginally. However, the Budget for FY25 did not change the taxes on cigarettes keeping taxes the same.
In the FY24 budget, the Indian government increased national calamity contingent duty (NCCD) by 15-16%. NCCD is levied as a duty on the excise duty. Note that, the highest Goods and Services Tax (GST) rate of 28% is also levied on cigarettes and tobacco products, including pan masala and cigars, while tobacco leaves are taxed at a lower rate of 5%.
Note that there is a proposal to impose 35 per cent GST on “sin goods” like aerated beverages and tobacco products. Earlier in December, a Group of Ministers (GoM) recommended a special rate of 35 per cent on sin goods like aerated beverages, cigarettes, tobacco and related products. If imposed, this will automatically increase the prices of the “sin goods” and any new sin tax will further raise the prices of the products.
According to experts, taxation on tobacco is a highly effective revenue-generating tool. Due to the product’s inelastic demand, higher taxes do not significantly reduce government earnings.
India is among 182 countries that have signed the WHO Framework Convention on Tobacco Control, which recommends a minimum of 75% tax on the retail price of all tobacco products. However, India’s current taxation rates fall short of this benchmark, with cigarettes taxed at 52.7%, bidis at 22%, and chewing tobacco at 63.8%.
