{"id":76490,"date":"2025-12-05T11:07:43","date_gmt":"2025-12-05T05:37:43","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=76490"},"modified":"2025-12-05T11:07:43","modified_gmt":"2025-12-05T05:37:43","slug":"cess-on-demerit-goods-explained","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/cess-on-demerit-goods-explained\/","title":{"rendered":"Health and National Security Cess on Demerit Goods"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><strong>Demerit Goods Latest News<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Union Finance Minister recently introduced the <\/span><b>Health Security Se National Security Cess Bill, 2025 in Parliament<\/b><span style=\"font-weight: 400;\">, clarifying that the proposed cess will apply only to demerit goods such as pan masala and will not affect essential commodities.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Health and National Security Cess\u00a0<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The proposed cess marks a new fiscal instrument designed to raise dedicated funds for two domains the government considers critical, health and national security.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It will be levied exclusively on demerit goods, especially those associated with high public health risks, such as <\/span><b>pan masala<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">According to the Finance Minister, these goods impose substantial health burdens on society, and the cess serves a dual purpose: discouraging consumption and generating revenue for public welfare.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The government has emphasised that no essential household goods will attract this cess, ensuring no inflationary impact on everyday consumption.\u00a0<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Key Features of the Proposed Cess<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li aria-level=\"1\"><b>Cess Applicable Only on Demerit Goods<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">The cess will apply on <\/span><i><span style=\"font-weight: 400;\">specified goods linked to significant health risks<\/span><\/i><span style=\"font-weight: 400;\">, such as pan masala, which has long been under scrutiny due to its public health impacts.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The government clarified that the cess is not consumption-based; rather, it will be imposed on a capacity-based, machine-linked system in manufacturing units.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Each factory\u2019s liability will depend on its installed machinery and production processes.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">This structure aims to reduce tax evasion and bring transparency to sectors historically difficult to regulate.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\"><b>Revenue Sharing with States<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">A notable aspect is that a portion of revenue collected will be shared with states, specifically for health awareness initiatives and health-related schemes.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">This is an <\/span><b>important deviation from traditional cesses, which are generally not shareable with states<\/b><span style=\"font-weight: 400;\">, a point that has drawn federalism-related criticism in the past.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">By explicitly providing for shared revenue, the Centre aims to strengthen cooperative fiscal federalism.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\"><b>No Adverse Impact on GST System<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">The Minister clarified that the cess will <\/span><i><span style=\"font-weight: 400;\">not<\/span><\/i><span style=\"font-weight: 400;\"> interfere with <\/span><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/goods-and-services-tax\/\" target=\"_blank\"><span style=\"font-weight: 400;\">GST<\/span><\/a><span style=\"font-weight: 400;\"> revenue sharing or GST Council mechanisms. For example:<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Pan masala currently attracts 28% GST + compensation cess.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The proposed cess is independent of GST and relates instead to production capacity.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">It ensures no disruption of the GST compensation framework.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Objectives Behind the Cess<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li aria-level=\"1\"><b>Dedicated Resource for National Priorities<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">The Bill\u2019s stated purpose is to <\/span><i><span style=\"font-weight: 400;\">augment resources for national security<\/span><\/i><span style=\"font-weight: 400;\"> and <\/span><i><span style=\"font-weight: 400;\">public health expenditure<\/span><\/i><span style=\"font-weight: 400;\">, two high-priority domains with rising fiscal demands.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The government argued that linking revenue collection directly to demerit goods enhances both accountability and predictability in funding.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\"><b>Deterrence Through Targeted Taxation<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">By taxing goods associated with lifestyle health risks, the cess intends to act as a disincentive, similar to the rationale behind \u201csin taxes\u201d in public finance.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The Minister noted that the cess is intended to impose a social cost on harmful products to reduce their usage over time.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Concerns and Criticisms Raised in Parliament<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li aria-level=\"1\"><b>Burden on MSMEs<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Opposition members argued that capacity-based taxation could <\/span><i><span style=\"font-weight: 400;\">hurt small manufacturing units<\/span><\/i><span style=\"font-weight: 400;\">, especially MSMEs, which may struggle with compliance and cost burdens.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">They claimed the system may disproportionately affect smaller players who lack the capital to upgrade machinery or navigate bureaucratic procedures.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\"><b>Fear of \u2018Inspector Raj\u2019<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Concerns were raised that capacity-based cesses could lead to increased inspection and regulatory oversight, potentially reviving the spectre of \u201cinspector raj.\u201d\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Members feared this could open the door to harassment, rent-seeking, and operational disruptions in smaller factories.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\"><b>Debate over Alternative Approaches<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Some MPs argued that if the intent is to curb harmful consumption, outright bans, as seen in Bihar for pan masala, would be a more effective strategy.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Others criticised the government for relying increasingly on cesses, calling it \u201ccessification of governance.\u201d\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Government\u2019s Defence and Rationale<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Treasury benches strongly defended the Bill, highlighting:<\/span>\n<ul>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"2\"><b>Transparency in revenue utilisation<\/b><span style=\"font-weight: 400;\">, claiming that this is the first legislation explicitly committing to tracing the use of every rupee collected from demerit goods.<\/span><\/li>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"2\"><b>National interest<\/b><span style=\"font-weight: 400;\">, asserting that funding for health and security should receive unanimous support.<\/span><\/li>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"2\"><b>Reduction in tax evasion<\/b><span style=\"font-weight: 400;\">, especially in the pan masala sector, due to machine-linked assessment.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><b>Source:<\/b> <strong><a href=\"https:\/\/www.thehindu.com\/business\/Economy\/health-national-security-cess-not-on-essential-commodities-revenues-to-be-shared-with-states-fm\/article70357227.ece\" target=\"_blank\" rel=\"nofollow noopener\">TH<\/a> | <a href=\"https:\/\/indianexpress.com\/article\/india\/national-security-cess-not-on-essential-goods-says-fm-nirmala-sitharaman-10403099\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Health and National Security Cess will apply only to demerit goods, with revenue shared with states.<\/p>\n","protected":false},"author":21,"featured_media":76494,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[4039,60,22,59],"class_list":{"0":"post-76490","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-demerit-goods","9":"tag-mains-articles","10":"tag-upsc-current-affairs","11":"tag-upsc-mains-current-affairs","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/76490","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/21"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=76490"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/76490\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/76494"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=76490"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=76490"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=76490"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}