The Lok Sabha has approved the Health and National Security Cess Bill, 2025, which levies a cess on pan masala manufacturing units to boost funding for defense and public health initiatives. This bill is intended to create a dedicated and predictable funding stream for national security and public health.
The cess will be levied on the production capacity of machines and certain processes in pan masala manufacturing units, in addition to the existing Goods and Services Tax (GST). Pan masala is already taxed at the maximum 40 percent GST rate, and the new cess is not expected to impact GST revenues. Finance Minister Nirmala Sitharaman clarified that the cess collections would be shared with states, as public health is a state subject.
During the debate on the bill, Sitharaman emphasized the government's commitment to discouraging the use of demerit goods. She stated that the collected cess would be allocated to public health and strengthening the defense ecosystem. She also highlighted the necessity of raising more resources to modernize the defense forces and address evolving security challenges, noting the increasing dominance of precision weapons, space-based assets, and cyber operations in modern conflicts. Sitharaman referenced Prime Minister Narendra Modi's Mission Sudarshan Chakra, aimed at building an impenetrable security shield around key locations, industrial hubs, and public sector assets. She cited Operation Sindoor as an example of technology-driven modern warfare that relies on sophisticated systems.
The Finance Minister defended the need for the cess, stating that collecting revenue and ensuring national defense is the duty of every government. She pointed out that the government has already reduced Income Tax and modified the GST structure to provide relief to the public, thereby giving up significant fiscal space. She also mentioned that the cess as a percentage of gross total revenue is 6.1% in the current fiscal year, which is lower than the 7% average between 2010 and 2014.
Several members of parliament participated in the debate on the bill. Dhaval Patel of BJP stated that health and security are crucial for India to become a developed nation by 2047 and noted the increase in government health expenditure as a share of GDP in the last 11 years. Independent MP Umeshbhai B Patel mentioned that over 1.3 million people die each year due to tobacco product usage. Hanuman Beniwal of RLP highlighted the ineffectiveness of banning gutkha, pan masala, and liquor across states, advocating for regulation of these products instead. Kishori Lal of Congress opposed the bill, arguing that it would undermine the financial independence of states.
Sitharaman clarified that the cess is not a new concept and that several cesses were in place before 2014, including a crude oil cess since 1974, the National Calamity Contingent Duty since 2001, and the Road and Infrastructure Cess since 2000. She noted that from 2014-15 to 2025-26, the government collected ₹6,49,459 crore in the name of health and education cesses and distributed ₹607,573 crore.
