Health Security se national Security Cess Bill, 2025

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Why in News?

Lok Sabha has passed the Health Security se National Security Cess Bill, 2025 aiming to raise revenue for health and national security expenditure. This cess on pan masala, will operate outside the GST framework.

Description:

GST Compensation Cess What is it?

A special cess imposed on sin and luxury goods (tobacco, pan masala, coal, aerated drinks, automobiles, etc.) to compensate States for revenue loss after GST was introduced in 2017.

Compensation Period: Constitutionally assured for 5 years → ended 30 June 2022.

Why does cess collection continue till 2026?

  • During COVID-19 (2020–21), the Centre borrowed ₹2.69 lakh crore to compensate States. The cess continues only to repay this loan, not for state compensation. Will continue till March 2026.

New Health Security se National Security Cess Bill, 2025:

Purpose:

  • Replace the old pre-GST machine-capacity levy on pan masala and tobacco.
  • Create a steady, predictable revenue stream for national security and public health programmes.

Key Features:

1.    Cess based on production capacity of machines:

  • Levy not linked to actual output or price.
  • Based on machine capacity ratings → prevents under-reporting and ensures steady revenue.

2.   Applies to the entire value chain:

  • All manufacturing steps (mixing, processing, filling, packaging) come under the cess.
  • Prevents tax evasion by shifting production to unregulated units.

3.   Outside the GST framework:

  • This is an excise-based cess, not a GST cess.
  • Allows the Union to impose targeted taxation on demerit goods.

4.   Revenue Sharing: Government has indicated States will share proceeds, unlike most cesses (though final formula awaited).

WHAT IS A CESS?

Constitutional Basis: Article 271: Parliament may levy surcharges and cesses for Union purposes.

Definition:

  • A tax on tax → imposed over and above the existing tax liability.
  • Proceeds collected for a specific purpose (health, education, sanitation, infrastructure).

Features:

  • Goes to the Consolidated Fund of India (CFI), but can be used only for the stated objective.
  • Usually not shared with States, giving the Union fiscal flexibility.

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