Statutory Warning: Cigarettes to cost more after budget?

It’s been a month that India’s leading conglomerate ITC Ltd has increased the prices of its cigarettes Navy Cut and Gold Flake. And with the budget day nearing, the smokers enjoying the winter breeze are anticipating another hole in the pocket very soon. The heat of the hike in price was felt by the people who buy full packet as the price of Navy Cut packet, which has gone up by Rs 11 to Rs 89 now. ALSO READ: Why China is ahead of us in tourism?

While the sudden surge in the price hasn’t been explained much by the company, revision of prices is quite common in pre-budget season.
The demonetization in November has affected the tobacco industry quite deep. Most road side sellers, for first few weeks, didn’t understand how to operate digital payments. And that served as a major setback for the industry. While cigarette is quite important from the economy point of view, doctor’s advice, healthy living and several anti-smoking drives have already unnerved the sector since last few years.

If the prices go further up, which is very highly possible this time, the cigarette companies would need to subsidize on the prices and incur some losses as usual.

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The finance ministry is also ready with GST rollout, which is now expected to go live on July 1. While cigarettes have been kept at 40% tax limit, experts believe, it should have been at 80%. Since these are a highly demerit product, 40% of GST indicates need for Rs 1902 crore of excise tax per 1,000 sticks in order to make sure the revenue from cigarettes stay intact.

“The taxation on tobacco should also be rationalized by a duty structure which is a mix of fixed and ad-valorem duty rather than only fixed duty component. By doing this, the Government will be able to generate additional revenue to the tune 20K-30K crore per annum which can be used for social and other activities and will also be discouraging the consumption of tobacco as per the WHO norms. Meanwhile alternative crop for tobacco farmers should also be given top priority, so as to keep their interest,” said Sanjay Dalmia, Chairman of Dalmia Group of Companies and also an expert in tobacco and pharmaceutical sector.