← Policy & Regulation: Pricing and Tariff Control (all topics)
Tobacco tax restructuring 2026
What it is
From 1 Feb 2026 cigarettes moved from 28% GST plus compensation cess to a 40% GST slab plus a fixed per-stick additional excise duty of Rs 2,050-8,500 per 1,000 sticks by length and filter type. The compensation cess was abolished 31 Jan 2026 once state borrowings were repaid
GST is now computed on printed retail sale price rather than transaction value, and bidis were cut to 18%
Impact on industries
- Cigarette stocks fell sharply on notification, with intraday declines of 10-19% across listed makers, reflecting expected volume impact from higher prices
- A fixed per-stick duty is regressive within the category - it falls hardest on lower-priced sticks, compressing the affordable end where volume sits
- RSP-based valuation and a fixed duty make the tax base predictable, replacing a variable cess whose rate could change without legislation
- Illicit trade is the standing risk - legal cigarettes are ~10% of tobacco consumption but ~80% of tobacco tax revenue, and taxes at ~53% of retail sit below the WHO 75% benchmark