Tobacco trade optimistic

The Tobacco Institute of India (TII) appeared to be happy with the budget for 2004-05 but tobacco industry players said, off the record, that the government had given a fresh lease of life to the vast tax-exempted segment of the tobacco represented by chewing tobacco, bidis and other traditional products.

Udayan Lall, director of TII, said, "We are cautiously optimistic. Although we are happy that no additional duties have been levied on cigarettes, however, we were hoping that the 15 per cent national calamity contingent duty, which was introduced as a temporary measure in February, 2001, would be withdrawn, thereby reducing the large and discriminatory gap between taxes on cigarettes and other tobacco products".

The cigarettes segment of the tobacco industry accounted for only 14 per cent of tobacco consumption but contributed 85 per cent of the revenue generated from tobacco at Rs 6000 crore. The two per cent cess alone will impact the cigarette industry by close to Rs 120 crore.

Because of the presence of a large number of cheaper tobacco alternatives any increase in cigarette duties and taxes was likely to lead some cigarette consumers to shift to cheaper and revenue in-efficient forms of tobacco consumption, like bidis and chewing tobacco.

"To that extent, cigarette consumption in India is price elastic, unlike tobacco consumption." Lall added.

The Finance Bill's focus on agriculture and outlays for the rural economy raised hopes that the industry would recover in the months ahead.

"Given the allocations for the agricultural sector, the Budget augurs well for tobacco farmers who have been affected by an unstable domestic cigarette industry," said Lall.

As much as 86 per cent of the tobacco industry was almost untaxed despite rapid growth in consumption of non-cigarette tobacco products.

For example, 22 crore tobacco bidis were smoked every hour in the country but there was no taxation on the product.

There existed a major opportunity for the government to raise taxes from such products to fund the deficit for promoting health care and welfare schemes.

If anything, taxes on tobacco products could fund health related projects, activist Bejon Misra, chairman of Consumer Coordination Council, said.

The tobacco industry in India is undertaxed despite the rapid growth in tobacco consumption spearheaded by traditional methods of consumption, he indicated.

A study showed 40 per cent of rural women in Rajasthan were smoking tobacco bidis, he added. Of the total world population suffering from oral cancer, a third were Indians thanks to tobacco-based chewing materials and masalas.

Misra said the government should reverse anomalies in the duty structure relating to tobacco products.

The Indian Parliament had enacted the stringent Tobacco Control Act, May 11, 2003, called The Cigarette and Other Tobacco Products (Prohibition of Advertisement, Regulation of Trade and Commerce, Production, Supply and Distribution) Act 2003, which came into force from May 1, 2004.

This law prohibited tobacco industry funded advertising, sponsoring of any sport or cultural events, and banned smoking in public places, sale of tobacco products to persons below the age of 18 and sale of tobacco products within 100 yards of educational institutions.

Indication of nicotine and tar contents on the packets and indication of pictorial warnings on the package was made mandatory.