Calcutta, Feb. 29: Daily puff will cost more soon as the Centre has again imposed a steep hike in excise duty on cigarette, the fifth such successive increase in as many years.

Finance minister Arun Jaitley in his budget speech said, “To discourage the consumption of tobacco and tobacco products, I propose to increase the excise duties on various tobacco products other than beedi by about 10- 15 per cent.” 

This is more than 8-10 per cent hike pencilled in by the market before the budget, disappointing the regulated tobacco industry as large section of consumption continued to remain outside the tax net.

“It is extremely disappointing that Union Budget 2016-17, on the back of four successive years of steep duty increases, has once again raised the excise duty rates on cigarettes. The continuing discriminatory treatment of cigarettes is a matter of deep concern particularly due to the fact that beedis, which are the most popularly consumed smoking tobacco product in India, especially in rural areas, have once again been spared with no increase in tax after 2012-13,” The Tobacco Institute of India, said in a statement. 

According to an estimate, the incidence of excise duty on cigarettes, at a per-unit level, has gone up cumulatively by 98 per cent since 2012-13, which is exerting severe pressure on the legal cigarette industry. The increase of 10 per cent in duty rates announced in this year’s budget would take up the cumulative duty impact since 2012-13 to 118 per cent.

Edelweiss Securities, in a note after the budget, said the hike would have a negative bearing on ITC Ltd, which sells three out of four legal stick of cigarette sold in India.  

“The hike will have a negative bearing on ITC’s cigarette volumes. We expect ITC to take cigarette price hikes of 7-8% in select packs (already increased by distributors in most markets),” Abneesh Roy, associate director, institutional securities, said in the note to its clients. 

According to its estimates, the bigger the stick, higher will be the incidence of taxation in terms of quantity. 

TII claimed the hike would be counterproductive as more illegal (tax not paid) cigarette would flood the market, frustrating the government’s idea to raise resource and curb smoking. 

According to Euromonitor International, a renowned global research organisation, illegal cigarettes have nearly doubled in last 10 years from 11.1 billion sticks in 2004 to 22.8 billion sticks in 2014, making India the fourth-largest illegal cigarette market in the world. 

In fact, a recent Ficci study, “Illicit Markets – A Threat to our National Interests” estimates the overall market for illegal cigarettes in India at a significant 20.2 per cent of the cigarette industry having grown from 15.7 per cent in 2010, resulting in a huge revenue loss of Rs.9,139 crore to the national exchequer, TII noted.