"It was noted in the first 15 days of the GST implementation that when the rate on cigarettes was translated, the cascading effect of taxes was not factored in", Jaitley explained. Despite falling in the 28% GST rate and 5% ad valorem on cigarettes, the additional cess will change as per the length of the cigarettes.
For other filter cigarettes the ad valorem has been increased to 36 per cent plus Rs 4,170 per 1,000 units.
Earlier there were reports that the Union Government may hike cess on cigarettes if prices fell after GST implementation.
GST Council meeting on tax on tobacco was held through video conference showing the pressure on the government to act on the cigarettes issue.
Infosys, Wipro power Sensex to new highs
Stocks of ITC suffered the most by falling 11.90 per cent to Rs 287 after the GST Council had yesterday hiked cess on cigarettes. The company's market valuation on BSE went up by Rs3,948.99 crore to Rs1,30,224.99 crore.
The GST Council in an emergency meeting on Monday hiked cess on cigarettes to ensure that overall taxes on them does not fall in the GST regime. "This gain, otherwise, would have either resulted in reduction of cigarette prices or would have gone as balance profit to the cigarette companies", Jaitley said, according to The Economic Times.
But this rate was lower than the pre-GST tax incidence and the choice before manufacturers was either to pass on the lower taxes to consumers by way of cutting rates or pocketing the windfall. The fixed cess varies depending on length and whether cigarettes are filter or non-filter.
Jaitley said to correct this, the GST Council has raised the fixed cess by INR 485 to 792 per thousand sticks.
The Minister said the decision to increase cess was taken unanimously by all states.
So far, 75 lakh new and old registrations have been made under the GST, he said.