New Tax Bill Targets Pan Masala, Gutkha to Fund Health and Defence

The Government of India has introduced the Healthy Security se National Security Cess Bill, 2025, which aims to impose a new tax on manufacturers of pan masala and gutkha. Finance Minister Nirmala Sitharaman presented the bill in the Lok Sabha on March 15, 2025, as part of a broader strategy to finance national defence and public health initiatives.

The proposed legislation seeks to establish a stringent tax regime targeting the production of specified goods, specifically pan masala and gutkha. Under this bill, a cess will be levied on the machines and processes used in the manufacture of these products. According to the legislation, “The cess is linked to the production capacity of machines or other processes rather than the quantity actually produced of such specified goods.”

Manufacturers will face compliance requirements that include mandatory registration and regular reporting. The framework also allows for audits and assessments to ensure adherence to the new regulations. Taxable entities are defined as those who own or control the machinery involved in production, whether directly or through contracted workers. Notably, the cess obligation will exist irrespective of the actual production volume, tying the liability to the speed and capacity of the machinery.

The bill contains provisions that grant the central government the authority to increase the cess by up to two times the scheduled amount under special circumstances. Furthermore, it enables the government to exempt certain manufacturers from the cess through public interest notifications. Funds collected from this cess will be deposited into the Consolidated Fund of India and can be allocated for various national security and public health projects, pending parliamentary approval.

In addition to financial implications, the bill outlines a detailed penalty structure for non-compliance. Serious offences, such as fraud or record falsification, could lead to imprisonment. Authorities will also have the power to conduct searches, seizures, and confiscate relevant goods and machinery.

The introduction of this bill follows a previous ‘sin tax’ implemented during the Goods and Services Tax (GST) rationalisation process. The government’s aim is to enhance funding for vital sectors while simultaneously addressing public health concerns related to tobacco consumption.

As discussions on this bill progress, the government’s approach highlights its commitment to intertwining national security with public health initiatives, a move that could significantly impact the pan masala and gutkha markets in India.