In order to plug structural loopholes, the government has increased the excise duty on cigarettes and tobacco products in Union Budget 2019.
While the excise duty has been raised to Rs 5 per thousand in Union Budget 2019 on filter cigarettes of upto 75 millimetre (mm) length and non-filter cigarettes of upto 70 mm length, on other cigarettes it has been raised to Rs 10 per thousand.
Cigarettes with tobacco substitutes will now attract an excise duty of Rs 5 per thousand from "nil" earlier.
“This implies very small increase of 0.5 paise per stick for below 75 mm and 1 paisa per stick above this size of threshold. Thus, the impact on cigarette is quite limited. It is levied to plug some legal loopholes. So this may not be viewed as a structural negative,” said Abneesh Roy, executive vice president, Edelweiss Securities.
This excise duty could replace the compensation cess once it is removed in the next three - four years.
The Union Budget 2019 has also expanded the excise net on hookah, chewing tobacco, zarda scented tobacco, gudaku tobacco and other kinds of smoking tobacco with a levy of 0.5 per cent and smoking mixture for pipes and cigarettes of 10 per cent from "nil" earlier.
Snuff and other tobacco products now attract 0.5 per cent of excise duty from "nil" earlier. Similarly, petroleum crude now attracts excise duty of Re 1 per tonne from "nil" earlier.
“Tobacco products and crude attract national calamity and contingent duty. In certain cases, this levy has been contested on the ground that there is no basic excise duty on these items. To address this issue, a nominal basic excise duty is being imposed,” said an analyst.
While the share price of ITC Ltd recovered nearly 4 per cent from the day’s low to close with a marginal gain of 0.63 per cent at Rs 279.45 apiece, other stocks in this sector like Godfrey Phillips India and VST Industries closed with a marginal decline at Rs 819.30 apiece and Rs 3,325 apiece on BSE on Friday.