Dismay in India over excise increases

The Indian Finance Minister, Arun Jaitley, has steeply increased excise taxes on cigarettes as part of the 2014 Budget, prompting warnings about a rise in illicit trade, according to a number of stories in the latest issue of the BBM Bommidala Group newsletter.

The specific tax on cigarettes has been increased by 11-72 per cent, depending on the length of the product, with similar hikes being made on cigars, cheroots and cigarillos.

Excise has been increased from 12 per cent to 16 per cent on pan masala, from 50 per cent to 55 per cent on unmanufactured tobacco, and from 60 per cent to 70 per cent on zarda scented tobacco, gutkha and chewing tobaccos.

The Tobacco Institute of India said the steep duty increase on cigarettes, coming as it did on the back of sharp rises in the previous two years, would provide a further fillip to the growing illicit trade in India, which already accounted for 19 per cent of the cigarette market.

In particular, the 72 per cent increase on cigarettes in the less than 65 mm category would give a huge impetus to domestically manufactured, tax-evaded cigarettes.

‘Moreover, the very high increment will further accelerate the shift in tobacco consumption from cigarettes to cheaper and revenue inefficient tobacco products,’ the Institute said in a statement.

‘As a consequence the share of the legal cigarette industry, which is a mere 12 per cent of total tobacco consumption in India, will be further eroded.

‘In overall terms, the jump in duty on cigarettes will neither help revenue generation nor serve the objective of tobacco control.’

Meanwhile, flue-cured tobacco growers in Andhra Pradesh and Karnataka have also expressed dismay at the steep rises in tobacco taxes.

They believe that the increases could cause a dip in both domestic and export demand, a fall in prices and, therefore, a negative impact on their livelihoods.