| 1) Maintain stability in Cigarette Excise Duty rates: |
IN order to improve domestic leaf off take, allow the cigarette industry to recover from a combination of the economic slowdown and the crippling impact of the increased excise duties imposed in the 2008/09 Union Budget, which resulted in the non-filter segment being priced out of the market. |
| 2) Retain the Specific Excise Duty Structure for cigarettes |
The specific duty structure has greatly benefited the tobacco farming community as it has resulted in better price realizations through the usage of higher quality and more expensive tobacco leaf.
Farmers have also profited through higher export earnings. |
| 3) Reduce the large tax differential between cigarettes and other tobacco products. |
Cigarettes are taxed at high and discriminatory rates and bear the brunt of tobacco taxation. Despite representing only 15% of total tobacco consumption they generate as much as 85% of the revenue from tobacco. Excise duties on cigarettes are 35 times higher than on other tobacco products, which are either lightly taxed or escape taxation. |
This is forcing consumers to switch to cheaper and revenue in-efficient alternatives like bides, chewing, etc. that contain higher levels of nicotine & tar. It is also resulting in a growth in non-cigarette tobacco consumption. |
| 4) High tax rates on cigarettes encouraging illegal manufacture/tax evasion |
In recent years, a large number of small cigarette manufacturing units have been set up who are evading excise duty and taking advantage of the lucrative tax arbitrage opportunity. Trade prices of their products even lower than the applicable excise duty rates. This can only happen if stocks are being illegally removed from the factory without payment of excise duty. |
| It is now estimated that such illegally cleared stocks account for as much as 10% of the industry resulting in an estimated revenue loss on this account of Rs.1000 crore p.a. |
| This illegal manufactures/clearances are affecting farmer incomes since these small manufacturing units source cheap / low grade tobaccos. |
This activity should be controlled through stricter surveillance, harsher penalties and compulsory licensing (as required under the I(D&R) Act, 1951). |
| 5)
Imposition of GST on cigarettes should be tax-neutral |
| For a highly taxed product like cigarettes, an Ad-valorem levy like GST would be a “tax on tax”, resulting in a significant cascading of taxes. This would only further increase the tax burden on cigarettes. |
| In order to ensure that: |
| A) The tax differential between cigarettes and other tobacco products does not further increase. |
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B) The imposition of GST is tax-neutral it must be ensured that GST on cigarettes is levied on “net value” i.e., transaction value net of all taxes. |
| 6) Contain smuggling of International brands |
High tax rates on domestic cigarettes provide an attractive tax arbitrage opportunity, resulting in the widespread availability of smuggled international brands. It is reported that the loss to the National exchequer, in terms of evaded taxes/duties and foreign exchange outflow is estimated to be anywhere between Rs.1500 to Rs.2000 crores. |
| More importantly, smuggled international cigarettes erode the demand for domestic tobaccos, affecting farmer incomes. |
| So as to minimize the impact on the domestic tobacco farming sector this activity should be controlled through: |
| - Prohibiting sales of cigarettes in duty-free shops and also excluding them from the duty – free baggage allowance. |
| - Stricter implementation of anti-smuggling measures, including increased surveillance and harsher penalties. |
