Health, National Security Cess will not be imposed on essential goods: Sitharaman

Finance Minister Nirmala Sitharaman on Thursday said the proposed Health and National Security Cess will be levied only on demerit goods, like pan masala, and not on essential commodities. She added that revenue generated from levying this cess will be shared with states for spending on health schemes.

“The purpose of the Health Security se National Security Cess Bill, 2025, is to create a dedicated and predictable resource stream for the two domains of national importance — health and national security,” said Sitharaman while moving the Bill in the Lok Sabha. The Bill was introduced on December 1.

Sitharaman said, “This is a cess, and it is placed not on any essential commodity. The purpose of this Bill is to levy a cess on demerit goods, which are associated with significant health risks. We wish to impose such a cost that may act as a deterrent to discourage people from using these goods.”

Sitharaman said pan masala would be taxed at the maximum 40 per cent rate under the Goods and Services Tax (GST) based on its consumption, and there would be no impact of this cess on the GST revenues.

The proposed cess, which will be over and above the GST, would be levied on the production capacity of machines in pan masala manufacturing factories. “The cess liability will be different for every factory, depending on their production capacity,” Sitharaman said.

The Opposition MPs cutting across party lines on Thursday demanded that the Bill be sent to a select committee of Parliament. They said it empowers Centre to levy cess on production capacity of demerit goods in the name of funding national security, calling it “cessification of governance”.

Several members from the INDIA bloc contended that levying of cess robs states of their revenue, while the Centre’s pool of funds gets enriched.

Many Opposition MPs, especially those from West Bengal and Tamil Nadu, and interestingly even the Congress MP from Ambala Varun Chaudhry, criticised the hybrid nomenclature of the proposed legislation.

Initiating the discussion on the Bill in Lok Sabha, Chaudhry wondered how national security could be guaranteed through proceeds of cess levied on machinery of pan masala manufacturers.

Citing the Covid-19 pandemic-induced lockdown in 2020, the Congress lawmaker pointed out that even during those times, while places of worship were closed, liquor stores remained open so that revenue generation could go on.

“By levying cess, states’ finances go down, while the proposed legislation does not even mention that cess will be shared with states,” he said.

Commenting on the name of the Bill, Chaudhry said that usage of Hindi and English words in its nomenclature, even though the Bill is in English, is not a good thing to do.

He wondered why the Bill refers to the word ‘taxes’ when the Centre has all along been harping on ‘One Nation One Tax’, the lawmaker sought to know, while alleging that with stringent penal provisions mentioned in the legislations against pan masala manufacturers who fail to comply with the norms, it will lead to ‘Inspector Raj’. Chaudhry said the Bill should be referred to a select committee of Parliament.

TMC MP Sougata Roy attacked the government and pointed out that Finance Minister Nirmala Sitharaman, who was present in the House, had not spoken a word on Indian Rupee hitting a record low of Rs 90 against the US Dollar. “The government has no plan of action against combatting air pollution, yet it is sitting smugly in the House and talking about health security,” Roy said.

T Sumathy, DMK MP from Chennai South, also questioned the use of Hindi words in the title of the bill, seeking linguistic equitability in a proposed legislation.

The discussion remained incomplete as the House was adjourned for the day, with Sitharaman scheduled to reply to the debate on December 5.