Saradha: uncertainty over cigarette tax collection

Even as thousands of investors affected in the Saradha scam are queuing at the commission office for compensation from the relief fund announced by the Mamata Banerjee, uncertainty is looming large on the Rs 150 crore to be generated from cigarette tax collection.

On April 25, the chief minister had announced a Rs 500 crore relief fund, of which Rs 150 crore was to come from a 10% additional tax imposed on cigarettes. But a fortnight later, even that seems unlikely.

Industry minister, Partha Chatterjee, said that ITC chairman, Y C Deveshwar, met the chief minister last week and spoke at length on the additional tax on cigarettes, though ITC did not want to comment on the meeting. Asked whether the state government would reconsider, Chatterjee said, the finance department would have to take a call.

The state government has already issued a notification on the new tax, which is now at 35%. But even if the state sticks to the rate, trade sources said that the government may not realize Rs 150 crore, as all the neighbouring states have a lower rate of value added tax (VAT) on cigarettes.

While Bihar is on the higher side at 30%, the tax rate on tobacco products in Jharkhand and elsewhere are between 20 and 25%. Earlier, in the budget, the state had raised the VAT on cigarettes from 20 to 25%.

“The state probably realizes that it may not be able to collect what it would have had it kept the rate at 25%,” industry officials said.

Besides the doubt whether the additional 10% tax on cigarettes would generate Rs 150 crore as per chief minister's math, it is still not clear where the rest of the corpus for the Rs 500 crore relief fund would come from.

The TMC leadership recently indicated it could even knock the Centre's door, the rationale being, the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India, did not intervene in time. It’s another matter that even the Rs 500 crore relief fund may not be enough to repay the depositors.

Police officials investigating the Saradha scam suggested that Saradha’s daily collections could be in the region of Rs 3 crore. The rush at the commission’s office is evidence enough.