Crackdown on Pan Masala, Center to Impose Health and National Security Cess

In an aggressive new campaign against demerit goods, the central government is to impose proposed Health and National Security Cess exclusively on the production capacity of pan masala units.

Union Finance Minister Nirmala Sitharaman informed the Lok Sabha about this during the discussion on the Health Security se National Security Cess Bill, 2025. She clarified that the levy will not apply to essential commodities and will function as an additional charge over the existing 40 per cent GST on pan masala.

Move to Curb to Consumption

Introducing the bill, Sitharaman said the cess is designed to curb consumption by raising the cost of manufacturing, while simultaneously creating a dedicated revenue stream for two national priorities: healthcare and security. Since the government cannot levy excise duty on pan masala under current legal provisions, a separate cess framework is being introduced to ensure that the product is taxed not just at the point of sale through GST but also at the point of production. The cess will be charged based on the declared production capacity of units, a mechanism expected to tighten compliance and make under-reporting or shadow production more difficult.

The finance minister said that part of the revenue generated will be shared with state governments for targeted health schemes, awareness campaigns and other interventions aimed at reducing the health burden associated with pan masala consumption. She emphasised that the levy is intended to act as a deterrent, given the widespread use of pan masala and its categorisation as a harmful product.

The move comes at a time when the GST compensation cess on sin goods is being phased out, necessitating alternative revenue channels to maintain high taxation on products considered injurious to public health. By introducing a capacity-based cess, the Centre aims to ensure predictability in revenue collection while signalling a stronger policy stance against addictive and hazardous consumables.

Manufacturing Units to be Hit

The proposed system is expected to impact manufacturers significantly, particularly smaller players who may struggle to manage the fixed monthly burden tied to their production setup rather than actual output. However, government officials argue that the measure is essential to regulate an industry that has long operated in fragmented and often opaque conditions.

The bill’s passage will mark a structural shift in how India taxes demerit goods, closing loopholes in the current system and creating an assured funding pipeline for health and security priorities.