Calcutta, July 28: Taxation is turning out to be a huge red rag for Calcutta-based cigarettes-to-foods conglomerate ITC.

Yogesh C. Deveshwar, the non-executive chairman of the Rs 60,493-crore giant, today signalled the group's frustration over the high incidence of taxation on processed foods on the mistaken assumption that branded biscuits, jams, noodles and pasta - on which the government has slapped an 18 per cent goods and services tax - were items of elitist consumption.

"Unfortunately, there seems to be a view that packaged branded food products are a source of elitist consumption. Therefore, the tax structure does not see them as providing impetus to the agricultural economy. The tax incidence on food processing must be viewed from the perspective that it adds tremendous value to the farmers and helps in ameliorating huge agri-wastage," Deveshwar told shareholders at ITC's annual general meeting here today.

The ITC chieftain said the government needed to create the right policy framework to encourage corporate participation in agriculture and related businesses if it was serious about trying to attain Prime Minister Narendra Modi's avowed goal of doubling farmers' income by 2022.

The other big beef was over the crippling taxes on cigarettes, especially after the government recently raised the cess on the demerit good to scuttle the prospect of cigarette makers making an "unintended windfall gain" of Rs 5,000 crore.

While announcing the hike in the cess on cigarettes, finance minister Arun Jaitley had said that the revision was revenue neutral and had insisted that there was no case for cigarette makers to raise prices.

ITC, which recently raised the prices of certain cigarette brands by 6-8 per cent, appeared to dispute the government's contention.

"The revised rate of compensation cess announced by the GST Council on July 18, 2017 with the intent to correct the anomaly in rates notified earlier has resulted in a sharp escalation of the tax incidence on cigarettes which is not in line with the fundamental principle of maintaining revenue neutrality under the GST regime. Coupled with the increase in excise duty earlier, the revised rates under the GST regime will raise the tax burden on the cigarette business by over 20 per cent," the company said in its commentary that accompanied its first-quarter results unveiled yesterday.

Sanjiv Puri, the chief executive officer who was facing the general body of shareholders for the first time since his elevation, said the taxes on cigarettes had risen over 200 per cent in the last five years.

At a press conference later in the day, Deveshwar said the high incidence of tax on cigarettes would enable foreign multinationals to flood the market with smuggled brands.

He blamed a section of non-government organisations (NGOs) - many of which receive overseas funds - for driving a motivated campaign against Indian cigarette companies.

"There are competitive interests at play. People are being funded from overseas. On a per kilogram basis, the incidence of tax on cigarettes is 55 times higher than that on other forms of tobacco," he added.

He claimed that smokers would not stop consuming cigarettes just because taxes were raised. But they could turn to smuggled brands, leading to a loss of revenue to the government. "Companies in other countries and farmers in other countries would gain as a result," he added.

Puri claimed that a recent study conducted by Ficci had revealed that no tax was paid on 68 per cent of the tobacco consumed in the country, leading to a loss of Rs 9,000 crore to the exchequer.

Deveshwar also pointed out that there were no pictorial health warnings in the US.

"Cigarettes from there are being smuggled into India. Indian consumers are beginning to buy those cigarettes thinking they are safer because there are no pictorial health warnings," he added.

Food foray

Deveshwar said corporate investment in the agricultural sector was constrained by "uncertainties in several market-related policies".

For instance, the Essential Commodities Act imposes needless stock limits and curbs on the movement of goods.

Another sticking point is the states' reluctant to implement the provisions of the amended Agriculture Produce Market Committee (APMC) Act, which proposes a single-point levy of market fee across a state and scraps the concept of a notified market area which used to result in a fragmentation of the market.

The Centre had recently asked states to modify their APMC acts to have a single licence and single point of market fee collection at the state level, before gradually bumping this dispensation up to the national level.

"In a short span of a decade or so, ITC's food business has already become the third-largest in the country and is well on its way to occupying a leadership position in the not-too-distant future," Deveshwar said.

The non-cigarette FMCG business, which now stands at Rs 14,000 crore includes food and personal care. Even though cigarette still contributes more than 80 per cent of ITC's pre-tax profit, the non-tobacco businesses, which includes hotel, paper and paper board and agri products, employ 77 per cent of the company's operating capital today.

The development also comes at a time the company has decided to foray into the fruits, vegetables and other perishables segment.

CEO for hospital

Deveshwar also told reporters that the group was searching for a chief executive officer who would put together plans to launch a multi-speciality hospital that would not compromise patient care by stubbing out the existing practice in certain corporate hospitals where doctors receive special commissions for ramping hospital revenues by inducing patients to undergo costly procedures.