Relevance: GS-3 (Economy – Taxation) | Source: The Hindu, PTI

Parliament has passed the Central Excise (Amendment) Bill, 2025, enabling the Centre to levy excise duty on tobacco products once the GST compensation cess ends in December.

What is Excise Duty? | Is it Part of the Divisible Pool?

• Excise duty is a Union tax on the manufacture/production of goods.

• It is part of the divisible pool, and a share (as per Finance Commission formula) is devolved to States.
  
• Cesses/surcharges, in contrast, are not shared with States.
  

Implications

• Ensures revenue continuity for the Centre and States after GST compensation cess ends.
  
• Maintains 40% tax incidence on tobacco within the GST framework without additional burden.
  
• Strengthens public health financing, as tobacco taxation is often tied to health-related spending.
  

Q. Which of the following statements is/are correct?

1. Excise duty is levied on the manufacture of goods and forms part of the divisible pool.
   
2. GST compensation cess on tobacco is shared with States based on Finance Commission devolution.
   
3. After the compensation cess ends, no tax can be levied on tobacco under the GST regime.
   

Select the correct answer:
(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2 and 3

Answer: (a)