The Goods and Services Tax (GST) Council has increased the cess applicable on cigarettes by 31 per cent to ensure the effective tax applicable to cigarettes doesn’t change under the new tax regime.

An anomaly that crept in after the GST rates were fixed allowed cigarette manufacturers to reap extraordinary benefits, Finance Minister Arun Jaitley said. Thus, the new cess, a hike between Rs 485 and Rs 792 per thousand sticks, will be effective from July 18 to take out this windfall.

Earlier, the GST Council had fixed a cess of 28 per cent rate for cigarettes apart from the 5 per cent ad valorem cess (a tax whose amount is based on the value of a transaction). This did not take into consideration certain additional taxes applicable earlier making the effective prices 8 per cent lower.

While the manufacturers could pass on benefits of lower taxes to consumers by reducing costs, they chose to pocket the windfall, according to a Mint report.

The cigarette cess was revised to correct this and take away the benefits from the manufacturers. Consumer prices will not change, Finance Minister Arun Jaitley was quoted as saying.

The new cess is projected to bring in an additional Rs 5,000 crore of revenue to the government.