The change ends uncertainty over taxes on tobacco products after the end of the compensation cess regime. Mani said the new label linking the cess to both health and defence funding is noteworthy. “This can possibly be linked to the fact that… the defence ministry requested for an allocation of 20% more for defense purposes in the budget,” he said. He expects the cess to generate significant revenue to support healthcare costs linked to tobacco and national security spending.
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A major change in the cess design is that it will be based on production capacity rather than actual output. “When something gets levied on the production capacity… the manufacturer has no option but to pay the tax… on the estimated production capacity,” Mani explained. For tobacco companies, the levy would apply even if production runs below full capacity. Any claim for lower tax would require approval from the authorities.
However, the revision does not simplify the already layered tax structure. Mani noted that companies will continue dealing with GST, central excise duty and now the new cess. “The expectation… that some simplification can be attempted here also… has not been met,” he said.
On the broader fiscal picture, Mani pointed out that revenue from the new cess will go entirely to the Centre at a time when tax collection growth is behind target. From April to October, the increase stood at 4.5% against a near 11% goal. He remains hopeful that consumption strength could support growth in GST collections. Mani said upcoming data will indicate whether improved demand, especially in high-tax categories like automobiles, can make up for the recent rate cuts.
For the full interview, watch the accompanying video
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