India’s parliament approves law that could raise taxes on cigarettes

NEW DELHI: India’s parliament approved a new tax law on Wednesday that experts say could increase the price of cigarettes for the estimated 100 million smokers in the world’s most populous country.

The health issues related to smoking tobacco are seen as a major drain on India’s resources, and the government has taken steps including new warning mandates and amending tax rates to curtail consumption.

“Certainly we don’t want cigarettes to become affordable,” Finance Minister Nirmala Sitharaman said as she sought parliament’s approval for the measure.

Total taxes on cigarettes in India currently account for approximately 53% of retail prices, substantially lower than the World Health Organization’s recommended benchmark of 75% aimed at discouraging consumption, she said. And factoring in purchasing power, their price has not increased, she added, citing WHO data.

The new law - the Central Excise (Amendment) Bill 2025 - will replace a temporary levy on products including cigarettes and some luxury items.

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Current taxes on cigarettes include a 28% goods and services tax and additional levies. The new bill will impose a value-based tax ranging between 2,700 and 11,000 rupees ($29 and $122) per thousand sticks depending on their size, which will be in addition to a 40% goods and services tax.

India’s leading cigarette manufacturers, which include the likes of ITC and Godfrey Phillips India, have not commented publicly on the changes.

Sitharaman did not directly specify how the tax change would affect cigarette prices. Experts, however, say the law will increase taxes and could, therefore, lead companies to raise prices.

“The proposed rates of excise duty are 25% to 40% higher on an average, as compared with the present taxes,” said Bipin Sapra, partner at EY India.

High taxes are in line with global best practices to alter behaviour regarding consumption of such products, Sapra added.

Tobacco consumption is one of the major causes of death and disease in India, according to the WHO, accounting for nearly 1.35 million deaths every year.