Tobacco excise duty not extra tax, revenue to be shared with states: FM
New Delhi (PTI): Excise duty sought to be levied on tobacco and its products through a new Bill will ensure that tax incidence on demerit items does not fall after the recent GST overhaul, Finance Minister Nirmala Sitharaman said, vowing to share revenues collected with states.
Replying to the debate on the Central Excise (Amendment) Bill in the Lok Sabha, Sitharaman said this is not an additional tax, and the tax burden, as currently applicable under the GST regime, will continue.
The Lok Sabha later passed the Bill with a voice vote.
The provisions of the Bill will come into effect once the GST compensation cess, which is currently levied on tobacco, comes to an end. The cess will cease to exist after the Rs 2.69 lakh crore loan taken to compensate states for revenue loss during Covid is repaid, which is likely to happen in the next couple of weeks.
"This is not a new law, this is not an additional tax or something that the Centre is taking away. Many MPs here observed that this is a Cess. This is not a Cess, this is Excise Duty. Excise duty existed before GST. The amount will be redistributed among states as per the Finance Commission's recommendations," Sitharaman said.
The Centre's tax revenues form part of the divisible pool, of which 41 per cent was shared among states.
By amending the Central Excise Act, 1944, the government seeks to levy excise duty of Rs 2,700 to Rs 11,000 per 1,000 sticks of various categories of cigarettes. The Bill also proposes a levy of 60-70 per cent on every kilogram of tobacco used for various purposes and 100 per cent per kg on chewing tobacco.
Quoting the World Health Organisation (WHO) observation that cigarette affordability has either stagnated or increased in the past decade in India, Sitharaman said that cess rates on cigarettes have remained unchanged since 2017, when GST was implemented.
She said that before GST, tax rates of tobacco were increased every year, so that high prices act as a deterrent to the consumption of the demerit good. After the sunset of compensation cess, the government is bringing back the excise duty, which existed prior to GST.
"Now, certainly, we don't want cigarettes to become affordable," she noted.
Pre-GST excise duty of Rs 1,585-2,850 per 100 sticks was levied on non-filter cigarettes. For filter cigarettes, the excise rate was in the range of Rs 1,585-4,170 per 100 sticks.
The minister said India's current total tax incidence on cigarettes is approximately 53 per cent of the retail sale price, which is substantially lower than the benchmark of 75 per cent. Besides, countries like the United Kingdom and Australia levy taxes on cigarettes well above 80-85 per cent of the retail price.
Under the GST regime, cigarettes attract a compensation cess of 5 per cent ad-valorem in addition to Rs 2,076-3,668 per 1,000 sticks, depending on their length. With the levy of GST and compensation cess on tobacco and its products, the rates of central excise duties were reduced significantly to allow for the levy of compensation cess without a substantial impact on tax incidence.
Sitharaman also clarified that there is no change in the tax incidence on beedi even after the levy of the excise duty.
With regard to concerns of MPs on the livelihood of farmers, Sitharaman said the government is trying to wean away farmers from growing tobacco and encouraging them to diversify to other crops.
"In order to ensure that the incidence is not lower than what it was during GST with the compensation cess, we are bringing this excise. In a way, we are saying cigarettes should not become affordable now because incidence has become less," the minister said while moving the Bill.
The Bill will replace the GST compensation cess, which is currently levied on all tobacco products like cigarettes, chewing tobacco, cigars, hookah, zarda, and scented tobacco. Currently, a 28 per cent GST plus cess at a varied rate is levied on tobacco.
Sitharaman said that at the time of the introduction of the GST on July 1, 2017, a compensation cess mechanism was put in place for 5 years till June 30, 2022, to make up for the revenue loss suffered by states on account of GST implementation.
The levy of compensation cess was later extended by 4 years till March 31, 2026, and the collection is being used to repay the Rs 2.69 lakh crore loan that the Centre took to compensate states for the GST revenue loss during the Covid period.
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Russian military hardware, spare parts for Indian military to be manufactured in India
New Delhi (PTI): Russia agreed to encourage joint manufacturing in India of military hardware and spare parts for maintenance of Russian-origin arms and defence equipment.
Ways to bolster overall bilateral defence cooperation figured prominently during summit talks between Prime Minister Narendra Modi and Russian President Vladimir Putin on Friday.
It has been a long-standing grievance of armed forces that the supply of critical spares and equipment from Russia takes a long time, affecting the maintenance of military systems procured from that country.
"Both sides agreed to encourage joint manufacturing in India of spare parts, components, aggregates and other products for maintenance of Russian origin arms and defence equipment under Make-in-India programme through transfer of technology," a joint statement said.
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It said both sides also agreed to set up joint ventures for meeting the needs of the Indian armed forces as well as subsequent export to mutually friendly third countries.
The joint statement said the India-Russia defence partnership is being reoriented to take up joint co-development and co-production of advanced defence technology and systems.
In their meeting on Thursday, Defence Minister Rajnath Singh and his Russian counterpart Andrey Belousov resolved to expand bilateral defence cooperation.
In the meeting, the Indian side showed keen interest in procurement of additional batches of S-400 missile systems from Moscow to bolster its combat prowess.
In October 2018, India signed a USD 5 billion deal with Russia to buy five units of the S-400 air defence missile systems, notwithstanding a warning by the US that going ahead with the contract may invite US sanctions under the provisions of Countering America's Adversaries Through Sanctions Act (CAATSA).
Three squadrons have already been delivered.
The S-400 systems played a crucial role during Operation Sindoor. India may also look at procuring the S-500 missile systems from Russia.
In the Modi-Putin talks, the two sides also agreed to continue jointly developing systems of bilateral trade settlements through the use of national currencies.
Additionally, the two sides agreed to continue their consultations on enabling the interoperability of the national payment systems, financial messaging systems, as well as central bank digital currency platforms.
Modi and Putin appreciated the ongoing intensification of the joint work on a free trade agreement on goods between India and the Eurasian Economic Union, covering sectors of mutual interest, the joint statement said.
They also directed both sides to intensify efforts in negotiations on a mutually beneficial agreement on the promotion and protection of investment, it said.
India and Russia also welcomed steps to ensure long-term supply of fertilisers to India and discussed the potential establishment of joint ventures in this area.
