Tobacco Industry Faces Mixed Impact Under GST 2.0
The latest GST 2.0 reforms have sparked debate across the country, particularly in the tobacco sector. The government has reduced the GST rate on bidis from 28% to 18%, while tendu leaves used in bidi production will now attract only 5% GST, down from 18%.
On the other hand, the tax on cigarettes, gutkha, and other tobacco products has been raised sharply from 28% to 40%. The new rates will come into effect on September 22, the first day of Navratri, alongside other sweeping changes in the indirect tax system.
The decision, according to government officials, was made to protect the domestic bidi industry, which employs more than 70 lakh workers across India. However, health activists and many social media users have criticised the move, questioning why one harmful tobacco product has been made cheaper while others face higher taxation.
Relief for the Bidi Industry
For decades, bidi-making has been a source of livelihood for millions of workers, especially women in rural and semi-urban regions. With high taxation under the earlier 28% GST slab, the industry struggled to stay competitive.
The RSS-affiliated Swadeshi Jagran Manch had lobbied for relief, arguing that the tax burden was creating hardship for bidi workers in both registered and unregistered units. In a letter to Finance Minister Nirmala Sitharaman, the organisation highlighted how employment was declining in the sector due to the high tax rate.
Historically, bidis faced little or no state-level sales tax, and central excise duty was minimal. The shift to a lower 18% GST rate aligns with this tradition and is expected to bring stability to the industry, ensuring job security for lakhs of workers.
Higher Taxes on Cigarettes and Gutkha
In contrast, the reforms have made cigarettes, gutkha, pan masala, and other tobacco products more expensive. The steep hike to a 40% GST slab aims to discourage consumption while boosting government revenue.
Importantly, the government clarified that once a product enters the 40% category, no additional cess or surcharge will be applied. This provides clarity to the industry but ensures that prices for consumers rise significantly.
Health experts argue this move is consistent with global practices, where cigarettes and similar products face “sin taxes” to reduce usage and fund healthcare.
Political and Social Reactions
The contrasting treatment of bidis and cigarettes has led to a flood of reactions. On social media, users mocked the decision, with many sarcastically claiming the government is “working for the masses” by making bidis cheaper.
Critics highlighted that bidis can be even more harmful than cigarettes, often being smoked without filters and consumed largely by underprivileged communities. Public health advocates fear this could worsen health risks for the poorest segments of society.
Some political commentators linked the decision to the upcoming Bihar Assembly elections, pointing out that bidi consumption is widespread in the state. They suggested the tax cut may be aimed at safeguarding employment and appealing to a large voter base.
Implementation and Transitional Issues
Although the new rates take effect on September 22, the government has said that all tobacco products — including cigarettes, gutkha, and bidis — will continue to be sold at current rates until outstanding loan and interest obligations under the compensation cess account are cleared.
This means consumers may not see immediate price changes in stores, though adjustments will be phased in over the coming weeks.
Meanwhile, enforcement agencies have been instructed to prevent black marketing or stockpiling of products ahead of the tax shift.
Broader GST 2.0 Context
The tobacco rate revision is part of a wider GST rationalisation, which has cut the number of slabs and simplified the system. The government has scrapped the 12% and 28% slabs, introducing a streamlined four-slab structure — 0%, 5%, 18% and 40%.
While bidis benefit from lower rates, luxury goods and high-end vehicles have been placed in the new 40% slab, while essentials like medicines and food items have seen major tax cuts.
The government hopes this reform will boost consumption, provide relief in key sectors, and address long-standing calls for a simpler GST framework.
Conclusion
The contrasting tax treatment of bidis and cigarettes under GST 2.0 highlights the delicate balance between employment concerns and public health priorities. While bidi workers gain protection through lower taxes, cigarette and gutkha consumers face higher costs aimed at discouraging use.
As India heads into the festive season, the changes will shape market dynamics, consumer spending, and political debate in equal measure