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Budget 2019: Cigarettes, tobacco items likely to become more expensive

BusinessToday.In     July 4, 2019

Budget 2019: Though most industries look for doles in budget every year, the cigarette and tobacco industry rarely gets one. In this Union Budget too, there are little hopes of cigarettes and tobacco producers getting any relief. Despite concerns raised by the cigarette and tobacco industry, health groups believe taxes on such products in India are still lower than the World Health Organisation (WHO) limit of 75 per cent on retail price.

However, the fact remains that the excise duty on the entire value chain of tobacco products from cigars, cheroots, cigarillos to filtered and non filtered cigarettes, hand-made 'bidis' and 'pan masala', has seen a significant hike in the past few years, which also reflects the government's policy to discourage the use of such products in the interest of public healthcare.

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This time, the tobacco industry expects the new Modi government to reduce excise duties and compensation cess, which has seen over 202 per cent rise since FY12. The Federation of All India Farmer Associations (FAIFA), a body representing the tobacco industry farmers of Andhra Pradesh, Telangana, Karnataka and Gujarat, recently told newly appointed Union Finance Minister Nirmala Sitharaman to look into cigarette taxation. The FAIFA said there had been a huge rise in compensation cess which has resulted in additional tax liability of around 13 per cent above the pre-GST levels.

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"The cigarette value chain is reeling under penalising taxation on account of continuous increases in excise duties and compensation cess on the cigarette, which have cumulatively gone up twice between 2011-12 and 2017-18. This resulted in the reduction of cigarette volumes by a fourth since 2012-13," Javare Gowda, President, Federation of All India Farmer Associations (FAIFA), said making a case for restoring taxation to pre-GST levels.

Due to these high taxes, the actual size of the cigarette industry in India has shrunk over 25 per cent in the past six-seven years, say industry representatives. The cigarette industry, which was at 110 billion sticks in FY12, has shrunk to around 83 billion sticks in FY17, they maintain.

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This has also given rise to the illegal cigarette industry, which has been flourishing at about 26 billion sticks in 2017 (about one-fourth of the entire cigarette industry). As per industry estimates, the illegal cigarette industry has caused around Rs 13,000 crore revenue loss to the legitimate traders.

However, according to public health groups, the overall tax rate on all tobacco products in India is still low very compared to other middle-income countries including those in South Asia. They say the tax burden on bidis post-GST is only 22 per cent compared to 53 per cent for cigarettes and about 60 per cent for smokeless tobacco. All of these are well below the WHO recommended rate of 75 per cent.

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Edited by Manoj Sharma

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