Context:
- The Union Finance Minister has introduced the Health and National Security Cess Bill, 2025, proposing a new cess on demerit goods to mobilise dedicated resources for public health and national security.
- The government clarified that essential goods will be excluded, addressing concerns over inflation and welfare impact.
Key Highlights:
Nature of the Cess
- A Health and National Security Cess will be levied only on demerit goods, notably pan masala.
- The cess is in addition to GST, but does not apply to essential commodities.
Tax Structure & Implementation
- Pan masala will be taxed at a maximum effective rate of 40% under GST, calculated based on production capacity, not consumption.
- The approach aims to discourage production and use due to severe public health risks.
Revenue Use & Federal Sharing
- Proceeds from the cess will be shared with States, earmarked for health schemes and national security expenditure.
- The government assured ring-fenced utilisation to ensure transparency and purpose-specific spending.
Parliamentary Debate & Concerns
- Some Members flagged concerns over growing dependence on cesses, calling it “cessification of governance”.
- Issues raised included:
- Possible burden on MSMEs
- Risk of bureaucratic overreach and revival of “inspector raj”
- Questions on why pan masala is taxed instead of banned outright
Government’s Stand
- The Centre defended the Bill, citing:
- Public health imperatives
- Need for predictable funding for national security
- Commitment to transparency and accountability in fund allocation
Relevant Prelims Points:
- Issue: Mobilising dedicated funds for health and national security without taxing essentials.
- Causes:
- Rising health expenditure
- Increasing national security needs
- Government Initiative:
- Health and National Security Cess Bill, 2025
- Benefits:
- Discourages consumption of harmful goods
- Generates non-distortionary revenue
- Challenges:
- Concerns over excessive use of cesses
- Compliance burden on manufacturers
- Impact:
- Strengthened fiscal capacity for targeted spending
Relevant Mains Points:
- Facts & Definitions:
- Cess: Tax levied for a specific purpose over and above existing taxes
- Demerit Goods: Goods harmful to society, e.g., tobacco, pan masala
- GST: Destination-based indirect tax subsuming multiple levies
- Conceptual Linkages:
- Fiscal federalism and revenue sharing
- Sin taxes as behavioural change tools
- Governance Concerns:
- Transparency in cess utilisation
- Parliamentary oversight of earmarked funds
- Way Forward:
- Limit proliferation of cesses to exceptional needs
- Ensure time-bound review of cess outcomes
- Integrate taxation with stronger public health regulation
UPSC Relevance (GS-wise):
- GS 2: Polity & Governance – Parliamentary legislation, fiscal accountability
- GS 3: Economy – Taxation policy, demerit goods, GST framework