Cigarette manufacturers worried by falling stock prices and plunging sales are lobbying hard to prevent the government from hiking excise duty for the third straight year.
The Tobacco Institute of India, Industry body, in its budget submission to the finance ministry, has requested the government to carry on with the current duty on cigarettes and reduce duty on the smaller size sub-65 mm. 200 per thousand sticks from length filter to Rs.669 per thousand cigarettes to allow the industry to fight against the proliferating illegal tax-evaded cigarettes and counterfeits.
In 2012-13, the centre had hiked excise duty on cigarettes by 22% and 18% last fiscal with several state governments too hiking the VAT rate.
This has triggered 40-55% hike in cigarette prices in phases over the last two years which, as per The Tobacco Institute, has taken its toll on the legal cigarette industry whose sales volume dropped by 9% last fiscal.
There is wide speculation that the government may further raise excise duty on cigarettes in the budget next month.
Last month, Prime Minister Narendra Modi tweeted about reducing tobacco consumption in India. The union health minister too is championing a hike on excise duties of tobacco products to trim down consumption and has urged finance ministry to increase proportion of tax on cigarettes as a percentage of their retail price from about 45% to over 60%.
These developments have triggered share prices of cigarette makers to tumble. Share price of market leader ITC fell from Rs. 345 a month back to RS.319.85 at the Bombay Stock Exchange last Friday.
“Share of legal cigarettes has come down to 12% of tobacco consumed from 21% three decades back, but pays 85 % of tobacco taxes. But tobacco consumed in other forms like chewing have grown by 59% in the same period,” Puri said.
Price per stick of Gold Flake Kings and Classic has gone up from Rs.5.8 in March 2013 to Rs.8.5 now. The companies claims hiking taxes just on cigarettes does not reduce overall tobacco consumption in India with consumers shifting to low-priced alternatives such as bidis and chewing tobacco.