Tobacco in highest tax bracket with cess

Companies & industry bodies did not wish to comment as the quantum of additional cess was not known

Tobacco will be subjected to the highest tax slab of 28% and an additional cess. The current rates of taxation on cigarettes and chewing tobacco are about 64% and 81%, respectively.

Companies and industry bodies did not wish to comment as the quantum of additional cess was not known.

UP IN SMOKE

• 800 mn kg: Total production
• 500 mn kg: Bidi & Chewing Tobacco consumption
• 75 mn kg: Cigarettes

Sources: Tobacco Board, Industry

The current tax structure was to accommodate Kerala’s request, which had pitched for 40% GST rate above the slab of 28% on demerit goods. The proposal for cess came from the Union finance ministry.

According to data available with the Tobacco Institute of India, which represents 90% of the legal domestic tobacco trade, the excise duty on cigarettes has gone up from Rs 953 a kg in 2005-06 to Rs 2,773 in 2014-15 while the same duty on non-cigarette products has gone up from Rs 33 a kg in 2005-06 to Rs 52 a kg in 2014-15.

While the Union Budget this year did not change the basic custom duty on cigarettes, the government raised the additional excise duty on the product by more than three times across cigarette sizes which resulted in the net impact of about 10%.

The excise duty on gutkha, chewing tobacco and zarda-scented tobacco was raised from 70% to 81%. However, the locally manufactured bidi was left out of ambit of tax hike.

A report from Edelweiss Securities on the excise duty hike in the Union Budget stated that the hike in 2016-17 on cigarettes has been lower when compared to the 13% hike in 2015-16 and the 21% hike in 2014-15. During 2013-14, the government had hiked the duty on tobacco products by 18%.

As per ITC’s 2016 annual report, over the last four years, the incidence of excise duty and VAT on cigarettes, at a per-unit level, has gone up cumulatively by 118% and 142%, respectively.