A stringent tax regime on cigarettes, tobacco and pan masala products will come into effect from Sunday with the Centre rolling out a dedicated health and national security cess on products already taxed at the highest Goods and Services Tax (GST) slab.Under the new regime, the existing levy of 28 per cent GST, along with compensation cess, will be replaced by a 40 per cent GST, supplemented by excise duty on tobacco products and a separate cess on pan masala.Besides, a new MRP-based valuation mechanism will be introduced for tobacco products (chewing tobacco, filter khaini, jarda scented tobacco, gutka) from February 1, whereby GST shall be determined based on the retail sale price declared on the package.Now, pan masala manufacturers need to apply for a new registration under the health and national security cess law. Manufacturers of such products also need to install a functional CCTV system covering all packing machines and preserve the footage for at least 24 months.They will also have to disclose the number of machines and their capacities with the excise authorities and can also claim abatement in excise duty in case a machine is non-functional for a minimum of 15 consecutive days.Effective February 1, the Central Excise Act has been amended to impose excise duty ranging from Rs 2.05-8.50 per stick based on cigarette length.Under the new tax structure, short non-filter cigarettes (up to 65 mm) will attract an additional duty of about Rs 2.05 per stick, while short filter cigarettes of the same length will be charged around Rs 2.10 per stick.Medium-length cigarettes (65-70 mm) will face an additional duty of roughly Rs 3.6-4 per stick, and long, premium cigarettes (70-75 mm) about Rs 5.4 per stick.The highest duty of Rs 8.50 per stick applies only to unusual or non-standard designs of cigarettes and most popular cigarette brands do not fall under this slab.Crisil Ratings in a report has said that the domestic cigarette industry will see a 6-8 per cent volume contraction in the next fiscal, following the imposition of additional excise duties.Chewing and jarda scented tobacco, and gutka will attract an excise duty of 82 per cent, and 91 per cent, respectively.The proceeds from excise duty on tobacco products will be redistributed among states as per Finance Commission recommendations. The Centre’s tax revenues form part of the divisible pool and 41 per cent of it is shared among the states.Besides, the proceeds from the cess levied on production capacity of pan masala manufacturing units will be shared with states through health awareness or other health-related schemes/activities.The GST Council, comprising finance ministers from Centre and states, had in September 2025, decided on the mechanism to levy cess and excise duty on such products over and above GST once the compensation cess mechanism ended after repayment of loans.