Cheap cigarettes flood Kerala

Filter cigarette brands, unheard of earlier, make inroads into the market share of big tobacco companies; sources say these are cheaply priced as tax evasion is rampant.

New filter cigarette brands, hitherto unheard of, are making an invasion into the cigarette and beedi markets through strategies that bank on low pricing and money-back offers.

Termed as ‘regular size filter cigarettes’, the cheap brands come mostly with a length of 70 mm or less, and are believed to be manufactured by a host of small manufacturing units across the country. The invasion is flooding Kerala’s cigarette market, pushing non-filter brands made by big popular companies to the verge of extinction. According to market sources, these cheap regular size filter cigarettes are available at prices of Rs 10 for a pack of ten. These prices, incidentally, are 50 per cent of the price of the accepted brands of non-filter cigarettes.

Talking to Business Standard, a tobacco industry source said : “These hitherto unheard-of ‘regular size filter cigarettes’ are available at trade prices ranging between Rs 400 and Rs 800 per 1,000 cigarettes against the related excise duty/cess/VAT for this segment of Rs 949.02 per 1,000 cigarettes. Such low market prices are possible only if stocks are being removed clandestinely without payment of excise duty”. There is no doubt that excise duty evasion is rampant, he alleged.

It’s not just the once popular non-filter cigarettes from the big tobacco companies that are hit hard. Dinesh Beedi Workers Central Cooperative, which makes the poor man’s beedi and boasts of a sizeable clientele among the working class in Kerala, has seen its revenues plummet.

C Rajan, chairman, Dinesh Beedi Workers Central Cooperative, said: “There has been a huge influx of unheard-of brands of filter cigarettes from across the Kerala border. With attractive packaging and fancy names these new brands lure the beedi smokers. Even consumers who used to smoke non-filter cigarettes are now smoking these fancy regular size filter cigarettes as they are priced much lower.”

Small units produce around an estimated 75 brands, accounting for about 7 per cent of the industry. Consequently, the monthly loss of excise duty and state taxes is estimated to be in the region of Rs 65 crore.

The situation of the beedi industry is even worse.” The three months have seen us take a major hit. As many as 500 jutesacks of 100,000 beedis is lying unsold,” Rajan added.

Duty evasion is one major allegation made by the beedi workers as well as the other tobacco companies, who used to enjoy a good market here prior to the arrival of the new cheaper players. The invasion of cheaper brands (even the local shopkeepers don’t seem to know where they come from) have gained much momentum consequent to the increase in the excise duty rates of non-filter cigarettes in the last Budget. “As a consequence, sales of the non-filter brands are estimated to have declined by as much as 90 per cent during the post-Budget period, and it seems more than likely that the segment will cease to exist within a few months,” a source said.

Consumers are also demonstrating a distinct preference for the cheap and convenient pricing of these brands at Rs 10 per packet as against the Rs 15 per pack for the cheapest legitimate brand.

“In terms of pricing, it has become impossible for the legitimate duty-paying industry to compete with these excise-evaded brands,” the source added.