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GST targets smokers, tobacco in highest tax slab

November 04, 2016 14:00 IST

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

Companies and industry bodies did not wish to comment as the quantum of additional cess was not known. The current tax structure was to accommodate Kerala’s request, which had pitched for 40 per cent GST rate above the slab of 28 per cent 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 per cent 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.

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

Sources: Tobacco Board, Industry

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 per cent. The excise duty on gutkha, chewing tobacco and zarda-scented tobacco was raised from 70 per cent to 81 per cent. 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 per cent hike in 2015-16 and the 21 per cent hike in 2014-15. During 2013-14, the government had hiked the duty on tobacco products by 18 per cent. 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 per cent and 142 per cent, respectively.

Image used for representational purposes only. Image: Ahmed Jadallah/Reuters.



Avishek Rakshit
Source: source