Union Budget 2021 | Smokers, your puff's not going to be a drag this year

The tax burden on cigarettes in India is far below international standards

cigarette manufacturer

cigarette manufacturer

Cigarette manufacturers heaved a sigh of relief as the Union Budget 2021-22, presented by Nirmala Sitharaman, skipped any taxation changes on tobacco products.

While presenting the previous Union Budget for 2020-21, Finance Minister Nirmala Sitharaman had proposed to increase the National Calamity Contingency Duty (NCCD) on cigarettes, hookah, chewing tobacco, snuff and tobacco extracts and essence.

“As a revenue measure, I propose to raise excise duty, by way of National Calamity Contingent Duty on cigarettes and other tobacco products. However, no change is being made in the duty rates of bidis,” Sitharaman had said in her last Budget speech.

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NCCD is a duty of excise imposed under the Finance Act, 2001, and is a surcharge on Excise duty. NCCD cannot be levied on products which are in GST regime.

However, in a relief to smokers and tobacco companies no such announcements were made in 2021-2022 Budget. Increasing the taxes or duties on tobacco and tobacco products would have severely hit sales of companies such as ITC, Godfrey Phillips India and a unit of Philip Morris International which operate in the country's $12 billion cigarette market.

In 2020, Sitharaman had announced increasing the NCCD on cigarettes, ranging from Rs 200-Rs 735 per thousand sticks, depending upon length of cigarette and on filter and non-filter basis.

Read | Budget 2021: Full text of FM Sitharaman's speech

It was increased to 60 per cent from 45 per cent on smoking mixtures for pipes and cigarettes, while on other forms of smoking tobacco (other than smoking mixtures for pipes and cigarettes) and forms of chewing tobacco, it was increased to 25 per cent from 10 per cent.

The central government, in a new draft law on Jan 6, suggested raising the legal age for smoking from 18 to 21, banning the sale of loose cigarettes and scrap smoking zones and rooms inside restaurants and airports, a move which industry experts have believe will only give rise to illicit cigarette trade in the country.

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The World Health Organization says nearly 1.35 million people die each year in India due to tobacco use.

According to some estimates the economic burden from tobacco use amounted to Rs 1,77,341 crore in 2017-18 which is 1 per cent of the country's GDP.

Tax burden on cigarettes in India far below international standards

The current tax burden on cigarettes in India is far below the standard of international best practice, a new study published in december showed. Australia and New Zealand were named the top-performing countries for significantly reducing the affordability of cigarettes, in the first edition of the International Cigarette Tax Scorecard, compiled by Tobacconomics.

Tobacconomics is based at the University of Illinois at Chicago's Institute for Health Research and Policy. The study said that while India had significantly improved its score on cigarette taxation policy from 1.38 in 2014 to 2.38 in 2016 after which it declined to 1.88 in 2018 due to the lack of tax increases on tobacco and increasing affordability of cigarettes.

"The current tax burden on cigarettes in India is 52 per cent and is far below the standard of international best practice. The lack of increase in taxes on tobacco products after the introduction of the GST in the year 2017 has increased the affordability of cigarettes in India," said Dr Rijo John, a health economist and adjunct professor at the Rajagiri College of Social Sciences, Kochi.

According to him, that India must reduce the number of tiers for the purpose of cigarette taxation and significantly increase its existing excise taxes on tobacco products to save lives and raise much-needed revenue.

(With inputs from PTI)