Bidi tax to benefit cigarette manufacturers most?

Cigarette manufacturers like ITC, VST and Godfrey Phillips may benefit the most from a probable tax on the sale of non-tobacco products like bidi, pan masala, hookah or gooduku tobacco and zarda.

“Though still at consultation stage, this step if implemented, is a positive for the organised cigarette players who will gain by shift from other forms of tobacco consumption,” Abneesh Roy, Tanmay Sharma and Alok Shah, Edelweiss analysts said in a report dated December 8.

The government had last week mulled over taxing these products under the pretext of making healthier lifestyle choices.

A proposal for bringing manufacture of ‘other tobacco products’ under the ambit of compulsory licensing is under consideration with a view to address public health issues, Commerce & Industry Minister Nirmala Sitharaman said in the Rajya Sabha.

The long condemned cigarettes, that comprise only 11% of overall tobacco consumption, have been facing tax up to 50% and comprise 87% of tobacco excise revenue.

This is only estimated to increase with the implementation of the Goods and Service Tax (GST) next year.

“Organised cigarette consumption, which comprises of mere 11% of total tobacco consumption in India, attracts 53xmore excise duty per kg of tobacco used. Also, excise duty and VAT on cigarettes at per unit level, has risen cumulatively by 118% and 142%, respectively, in the past 4 years,” the report said.

The analysts further added, “Illegal/ smuggled cigarette is another menace and forms one-fifth of overall cigarette industry in India – making India the 4th largest market for illegal cigarettes in the world.”

The analysts believe that licensing of other non-cigarette tobacco products will help create a level-playing field across tobacco products.

“GST and licensing can be catalysts for conversion from the unorganised segment,” the analysts said.