Calcutta, Feb. 28: Finance minister P. Chidambaram today proposed to increase “specific excise duty” on cigarettes to increase revenue collection.
Excise duty on cigarette and allied products has been hiked 18 per cent in today’s budget. In his speech, Chidambaram said, “What does a finance minister turn to when he requires resources? The answer is cigarettes. I propose to increase the specific excise duty on cigarettes by about 18 percent. Similar increases are proposed on cigars, cheroots and cigarillos.”
Analysts said the move was expected to impact the volume of firms such as ITC in the short run. But, firms will look to pass the duty hike on consumers, negating the volume impact in the medium to long term. Last year, the government had levied a 10 per cent retail price-based excise on cigarettes longer than 65mm.
ITC shares recovered to close at Rs 295.10 on the BSE after falling to Rs 290.55 during the day.
“As against market expectations of a 10 per cent increase in specific excise duties on cigarettes, the government has increased specific excise duties on cigarettes by 18 per cent (with the exception of the below 65 mm segment, which was unchanged). This marks the second consecutive year of a 15 per cent plus excise duty hike, a phenomenon that was last witnessed 20 years back,” said Nikhil Vora, MD and head of research, IDFC Securities
On the development, Udayan Lall, director of Tobacco Institute of India, said, “We were disappointed that cigarettes, which represent only 15 per cent of total tobacco consumption, were singled out for this steep increase of 18 per cent in excise duty rates. This inequitable treatment, coupled with an ever-increasing VAT incidence, will substantially increase the tax arbitrage opportunity, thereby incentivising the rapidly growing illicit trade.”
“The affordability and accessibility of cheap illicit cigarettes will not only undermine revenue collections but also, the tobacco control policies of the government,” Lall said.