Mixed response to rise in tax on cigarettes

"With the new excise, no manufacturer can produce a cigarette at the Rs 5-price point. So, consumers of non-filter cigarettes will be forced to migrate to cheaper tobacco products such as beedis, gutka and khaini, which are far more toxic," says Nita Kapoor, executive vice-president, marketing and corporate affairs, Godfrey Phillips India, which makes brands such as Four Square, Red & White and Jaisalmer.

Industry observers do not see an increase in the conversion rate of non-filter consumers to the filter version as most of them are price-sensitive. Also, most of these consumers were erstwhile beedi and chewing tobacco consumers, who migrated upwards to these cigarettes.

"Such consumers do not have the purchasing power to absorb such a steep price increase. As a result, this entire segment would be forced to come down to cheaper forms of tobacco and consequently, expand the market for beedis and gutka and other revenue-inefficient forms of tobacco," said another industry expert.

The industry also fears the likelihood of cheap cigarettes being smuggled from across the border to fill the price gap, as there would be no legitimate domestic cigarette pack of 10 available at a price below Rs 13.50.

On the other hand, GTC Industries, which makes brands such as Panama, Golden's Goldflake and Chancellor, has welcomed the move, citing it is an indicator towards the need for taxation to be based on toxicity and not the length of a cigarette.

"GTC welcomes taxation policies based on toxicity; we envisage a trend towards de-incentivisation of more toxic cigarettes by the government and a definite move towards encouraging less toxicity in cigarettes and other tobacco products. The larger implication for the tobacco industry is product reform towards making products less harmful," says Sanjay Dalmia, Chairman GTC Industries Limited.

While the industry realises the impact of revised duty on the production of filter and non-filter cigarettes, the larger issue is the introduction of 59mm filter category and appropriate taxation structure.

"We urge the FM to consider introducing Filter Category of 59mm cigarettes also as 69, 74 and 84mm category already exists and there is no reason why the smokers of 59mm cigarettes should be devoid of filterisation in this category," explains Dalmia.