Cigarette Prices to Rise as Centre Reintroduces Excise Duty
In a major fiscal and public health move, the Indian government has announced a sharp increase in excise duties on cigarettes and tobacco products, effective February 1, 2026. The new tax structure — the first major revision since the rollout of GST in 2017 — signals both a revenue push and a renewed emphasis on discouraging tobacco use.
According to the new framework, cigarette prices may surge by 15–20% across categories as the government imposes graded excise duties for different lengths and types of cigarettes. This marks a return to pre-GST tax regimes that had been largely rolled back nearly a decade ago.
New Excise Duty Slabs Explained
The revised excise duty will be levied per thousand cigarettes, depending on size and whether the stick is filtered or unfiltered:
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Small non-filtered cigarettes (under 65 mm): ₹250 per 1,000 sticks.
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Filtered cigarettes (up to 65 mm): ₹2,100 per 1,000 sticks.
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Medium-sized cigarettes (65–70 mm): Around ₹4 per stick.
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Premium cigarettes (70–75 mm): ₹5.5 per stick.
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Luxury range (over 75 mm): ₹8.5 per stick.
That means a cigarette currently selling for ₹18 could soon cost between ₹21–₹22, depending on its category — a substantial jump that consumers are likely to feel.
Industry insiders suggest that tobacco firms like ITC Ltd. may absorb a portion of the hike initially to prevent an immediate drop in demand. However, gradual price increases remain inevitable. Following the announcement, ITC’s shares dropped nearly 10% on Thursday, underlining market nervousness around the new fiscal policy.
Why the Government is Doing This
The move is intended to serve dual objectives — enhancing revenue and protecting public health. Official estimates suggest that over 10 crore Indians smoke cigarettes, contributing to approximately 13 lakh annual deaths linked to tobacco use.
By increasing prices, the government aims to make cigarettes less accessible, particularly for first-time and low-income smokers. Economically, tobacco already contributes more than ₹7,000 crore annually to the exchequer, and the reintroduction of excise duties is expected to boost short-term fiscal inflows.
Additionally, officials believe the added revenue can support anti-tobacco awareness programs and healthcare spending linked to smoking-related diseases.
Health, Economics, and Hidden Risks
While the policy aligns with the WHO Framework Convention on Tobacco Control (FCTC), India still falls short of the WHO-recommended benchmark of 75% tax incidence on retail cigarette prices. Even after the hike, the effective taxation in India will hover near 53%.
Experts warn, however, that higher cigarette prices may inadvertently drive smokers toward cheaper alternatives such as bidis or illicit tobacco — both more harmful and harder to regulate. Past experiences also show that steep taxation can encourage black-market growth and counterfeit trade.
Impact on Pan Masala and Other Tobacco Products
The government isn’t stopping with cigarettes. Pan masala, chewing tobacco, and zarda will also see tax hikes. The new system will tax manufacturers based on their production capacity — meaning that even if a company under-produces, it will still be taxed according to its installed machinery and potential output. This move primarily targets under-reporting and revenue leakages in the sector.
Opinion: A Balanced Yet Bold Step
Reinstating heavy excise duties on cigarettes after seven years is both a bold fiscal measure and a strategic health intervention. However, India must ensure that the policy does not unintentionally push smokers toward unregulated or unsafe alternatives. For meaningful impact, the new tax structure should be accompanied by sustained awareness campaigns, strict enforcement, and support for cessation programs.
Ultimately, the success of this policy will be measured not by how much revenue it raises — but by how many lives it helps save.
