Higher cess on cigarettes to affect industry, farmers: TII

The government's move to increase cess on cigarettes will put severe pressure on the industry and also impact tobacco farmers, the Tobacco Institute of India (TII) said today.

The development will also give a fillip to smuggling and illicit cigarette trade in the country, it added.

The GST Council yesterday raised the cess on cigarettes to take away an estimated Rs 5,000 crore annual "windfall" manufacturers could have reaped from lower GST rates.

The additional tax burden will "exacerbate the pressure" on the entire legal cigarette value chain in the country, TII said.

It further said the industry is already reeling under a huge tax burden on account of the continuous increase in excise duties on cigarettes, which have cumulatively gone up by 131 per cent over the last six years.
 

"The escalation in cigarette taxation will lead to a further increase in the already huge arbitrage opportunity and provide an enormous incentive to smuggling syndicates who often fund terror groups," it said.

Earlier, the government had fixed a peak GST rate of 28 per cent on cigarettes. On top of it, a cess was levied to create a corpus for compensating states for any loss of revenue from implementing the GST.

The cess was made up of 5 per cent ad valorem rate and a fixed per thousand stick rate based on length of cigarettes.

Yesterday, the government announced that the peak GST rate of 28 per cent as also the 5 per cent ad valorem cess will continue but the fixed cess has been hiked in the range of Rs 485 and 792 per thousand sticks.

Stating that the tobacco farmers are already under severe pressure due to the fall in demand, TII said the increase in taxation and the drop in legal cigarettes will have a debilitating impact on the farmers whose livelihoods are inextricably linked to the legal cigarette value chain.

Tobacco Institute of India represents interests of legal cigarette makers such as ITC, Godfrey Phillips and VST, among others, accounting for more than 90 per cent of the country's domestic sales of duty paid cigarettes.