Lok Sabha passes bill to levy cess on sin goods for national security

Lok Sabha passed the Health Security se National Security Cess Bill, 2025, to tax 'sin goods' like pan masala. Finance Minister Nirmala Sitharaman said the cess will raise funds for health and national security, especially for defence needs.

Lok Sabha on Friday passed The Health Security se National Security Cess Bill, 2025, whose objective is to raise additional funds from what is widely called demerit or sin goods -- such as pan masala -- for "Health Security" and "National Security."

FM Sitharaman Defends Cess Bill

Replying to the discussion on The Health Security se National Security Cess Bill, 2025 in Lok Sabha, Finance Minister Nirmala Sitharaman thanks the members for participating in the debate. "Public health is a State subject, and defence is on the Central list. We need to raise resources for defence to match today's needs," she said.

The Finance Minister said that the government wants to ensure that goods with demerits are not cheap. She said that as a finance minister, her responsibility is to raise funds; she said this in response to some members asking why tax should be imposed on paan masala for the defence budget.

"No member would want a lower tax on paan masala," she asked. "Money can be used for anything, but collecting revenue is justified."

"Public health is a state domain. National defence is a domain of the Government of India. In this day and age, where credible defence capabilities are absolutely critical, we need to raise resources. Precision weapons, space assets, cyber operations, etc dominate modern conflicts. They are becoming capital-intensive," she said.

Citing Past Defence Shortfalls

"Once the Defence Minister had said in a statement in this House, 'I'm unable to procure ammunition because I don't have money'. Everybody knows to whom I'm referring to," she said, without naming anyone.

"The gap with which the Defence suffered, it took a long time to restore that kind of preparedness of our armed forces," she said, reemphasising the need for such a cess. In her reply, she also asserted how her government raised an exemption on personal income tax. "Within one year, we gave a huge reduction in income tax. The Kargil conflict suffered because of a lack of preparedness. Army Generals have said that because of budgetary constraints from the early 1990s, the army was holding only 70-80 per cent of authorised weapons, ammunition and equipment... We don't want that stage ever in India back again," she said.

Framework for Fund Allocation and Historical Context

In response to members' questions about the lack of clarity regarding the distribution of the cess, she said that Section 7 clearly explains the framework. How the funds will be allocated will be laid out in the rules. Cess falls under the complete domain of the parliament so that the rate will be fixed after discussion with the House, she added.

According to the minister, the constitutional power to levy a cess is found in Article 270, which authorises Parliament to impose a cess for a specific purpose. Minister Sitharaman, in her reply, also gave details of cesses collected so far: Cess on crude oil: Money was transferred to the Oil Industry Development Fund; National Calamity Contingent Duty: For disaster rehabilitation; Road and Infrastructure cess on fuel: Money transferred to the Centre Road and Infrastructure Fund; and Health and Education cess: More money transferred than collected.

"It's not that in 2014 the government decided that we would levy cess and not give funds to the states. Before 2014, four types of cess were being collected. In 1974, a cess was imposed on crude oil to create the Crude Oil Industry Development Fund. This fund was established in 2023-24. National Calamity Contingent Duty has been collected since 2001. Road and Infra Cess have been collected since the year 2000. In the name of health and education, from 2014-15 to 2025-26, Rs 6,49,459 crore in cess was collected, while the government distributed Rs 607,573 crore. These four types of cess were in place before 2014," she asserted.

Separate Bill on Tobacco Excise Duty

Similarly, the Parliament on Thursday passed a bill, and the Lok Sabha on Wednesday passed a bill aimed at increasing excise duty on tobacco products and their manufacturing after a discussion. The Finance Minister had categorically said that excise duty would be levied and not cess, clearing apprehensions of some members.

"This is not a cess," she said. The minister said that the revenue collected will go to the divisible pool, and will be redistributed again (at the 41 per cent) with the States. The government is reinstating the excise duty that existed before the GST system, she said.

Minister Sitharaman had introduced two bills in the Lok Sabha on Monday, the first day of the Winter session of Parliament. She introduced the Central Excise (Amendment) Bill, 2025, and the Health Security se National Security Cess Bill, 2025, in Lok Sabha. (ANI)

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