While Finance Minister Arun Jaitley has left excise and customs duties on most items largely unchanged presumably in anticipation of the Goods and Services Tax that comes into force on July 1, there was no escaping the wrath of the policymaker for the tobacco industry.
In consonance with the government's broad policy to discourage use of tobacco products in the interest of public healthcare and safety, the excise duty on the entire value chain of tobacco products from cigars, cheroots, cigarillos to filtered and non filtered cigarettes, hand-made 'bidis' and 'pan masala', has been hiked in varying quantum in the Union Budget 2017-18.
While the excise duty on cigars and cheroots have been hiked to 12.5 per cent or Rs 4006 per thousand, there has been a straight 3 per cent increase in duty on 'pan masala' products. The duty on other unmanufactured tobacco has gone up to 8.3 per cent from 4.2 per cent. For 'pan masala' products containing tobacco or 'gutkha', the hike is from 10 per cent to 12 per cent, duty on non-filter cigarettes of length not exceeding 65 mm has been raised to Rs 311 per thousand from Rs 215.
Tax on tobacco products have been going up continuously over the past few years as the government has grown conscious of the need to curb their usage. Excise duties on cigarettes was increased by 22 per cent in 2012-13, 18 per cent in 2013-14 and around 21 per cent in 2014-15. This government that was sworn into power in May 2014 has been even more aggressive. In July 2014, while presenting a truncated union budget, Finance Minister Arun Jaitley hiked duties on cigarettes between 11-72 per cent following it up next year in 2015-16, with another 10 per cent increase. The industry is obviously not amused.
"Over the last 4 years, the incidence of Excise Duty and VAT on cigarettes, at a per unit level, has gone up cumulatively by 118 per cent and 145 per cent respectively, thereby exerting severe pressure on legal industry volumes even as illegal trade grows unabated. It is pertinent to note that steep increases in Excise Duty on cigarettes in recent years have resulted in widening the differential in Excise Duty rates (on a per kg. of tobacco basis) between cigarettes and other tobacco products from 29 times in 2005/06 to over 53 times currently," says ITC, India's largest cigarette manufacturer.
"High incidence of taxation and a discriminatory regulatory regime on cigarettes in India have over the years led to a significant shift in tobacco consumption to lightly taxed or tax-evaded tobacco products like 'bidi', 'khaini', chewing tobacco, 'gutkha' and illegal cigarettes which presently constitute over 89 per cent of total tobacco consumption in the country."