Finance Minister Nirmala Sitharaman in Union Budget 2020 proposed to increase excise duty on cigarettes across various lengths, which means that smokers have to shell out more for a pack.
A rough calculation suggests a 10 percent increase in excise duty. If companies don’t pass on can impact ebit by 15-16 percent.
“As a revenue measure, I propose to raise excise duty, by way of National Calamity Contingent Duty on cigarettes and other tobacco products. However, no change is being made in the duty rates of bidis,” she said.
Excise duty on cigarettes across various lengths increased:
An overall increase of 6-8 percent tax per cigarette stick.
If companies don’t pass this on, EBIT could be impacted by 11-13 percent.
Assuming NCCD and basic excise duty clubbed.
The Larger Negative
Basic excise duty of Rs 5/1,000 sticks was added in Budget 2019. Street feared this will increase in subsequent budgets. Now this will be an overhang in future Budgets.
The cigarette sizes are measured by the length and diameter of the cigarette. Regular cigarettes are normally 70 millimetres long, whereas King sized cigarettes may go up to 120 millimetres.
Tobacco Institute of India said the increase in national calamity contingent duty (NCCD) announced in the Union Budget 2020-21 and the resulting escalation in cigarette taxation will serve as a huge incentive to illegal cigarette traders, who target India as a preferred destination for smuggled cigarettes.
Tobacco Institute of India is a representative body of farmers, manufacturers, exporters of tobacco industry in the country.
"The debilitating and relentless increases in tax rates in the years between 2012 and 2017 and the imposition of GST levy at a higher than Revenue Neutral rate in July 2017 provided continued rise in tax arbitrage to smuggling syndicates severely undermining the legal cigarette industry and adversely impacting tobacco farmers and the revenue objective of the Government," it said.
Illegal cigarette trades have grown consistently in the country and now account for 1/4th of the Indian cigarette market.
According to Euromonitor International, India is now the 4th largest illegal cigarette market in the world with illicit cigarettes more than doubling from a level of 11.1 billion sticks in 2004 to 25.6 billion sticks in 2018, resulting in an annual Revenue loss of Rs 13,000 crores to the Government.
First Published: IST