The tobacco consumption pattern in India is unique. Only 11% of total tobacco is consumed in the form of Legal Cigarettes. The balance 89% is consumed in other forms such as chewing tobacco, zarda, bidi and illegal cigarettes. This is unlike the rest of the world where tobacco consumption is synonymous with cigarettes which account for as much as 90% of total consumption.

Despite a mere 11% share of consumption, Government collects 87% of its total tobacco revenue from legal cigarettes. The reason for this distorted pattern of revenue collections is that cigarettes are subjected to high and discriminatory rates of taxation, as compared to other tobacco products.

The tobacco industry is thriving as evident by the balance sheet of ITC. Many reports have been released by W.H.O claiming that India is harbouring the world’s highest occurrence of mouth cancer. India is the second largest consumer of tobacco, having an shocking 275 million users!

A lot of returns is generated from the sale of tobacco for the Indian government. Even though the tax burden charged on the Indian tobacco industry is not enough as per the reference of the W.H.O for a tax burden of 75% on all tobacco-related products. There has been an increasing petition for a higher tax burden on the tobacco manufacturers.

 The weighted average incidence of State taxes (VAT, entry tax etc) on Cigarettes is currently at around 24%.

 Excise duty is taxed on the manufacturing of cigarettes, bidi, and other chewing tobacco products at different rates.

  • Cigarette – 64%
  • Bidi – 22%
  • Chewing products – 81%

 

Under GST, there will be an additional cess charged on the tobacco-related products, over and above the GST charged at the rate of 28%.

  • Cigars and cigarillos will be charged at the rate of 28% and an additional cess up to 21% or Rs 4.170 per stick would be levied.
  • Chewing tobacco has also been kept under the 28% category and an additional cess of 142% would be levied upon chewing tobacco (with lime tube) and 160% on chewing tobacco (without lime tube).

 The new GST regime would have an adverse effect on the tobacco sector, including production and trade, the farmers in the traditional growing areas of Southern Black Soil (SBS) and Southern Light Soil (SLS) insisted Chief Minister N. Chandrababu Naidu to use his good offices with the Centre to scrap the 5 % GST on tobacco leaves and 28 % GST on unmanufactured (raw) tobacco.

GST on tobacco had come as at a most inconvenient time when they were looking to make some gains as the demand and supply situation was in their favour this year, Ongole II Farmers Association President V.V. Prasad while taking stock of the situation with fellow farmers

 “If the present impasse continues, we will have no option but to boycott the trading next week also,” they warned. The tobacco sector is already taxed heavily at the level of cigarette manufacturers, while exporters are given back the tax paid on shipment, Ch. Ravi Babu, a tobacco trader, explained. “We will not be able to trade in tobacco paying 28% GST as the raw tobacco changes hands from one dealer to another three or four times before exports are affected,” he said.

The Federation of All India Farmer Associations (FAIFA) has appealed to the government to roll back 5 per cent goods and services tax (GST) on raw tobacco and the conduct of tobacco crop like “any other agricultural crop.”

The impact of GST is only on trade and the growers are not affected by the GST regime. It is unfortunate that the traders are provoking the growers to boycott the sales. We condemn their action. If the traders have a problem, they should take it up with the government,’’ said Dr. Sivaji. Expressing concern that the only less than 50% of the produce has been auctioned so far, Dr. Sivaji said that the auctions might not be extended up to September. He said the Centre should come out with a comprehensive policy on tobacco so that the farmers could plan their production. He also suggested that the Calamities Relief Fund collected from Tobacco growers of Ongole-I, Ongole-II and some villages of Tangutur be refunded to the growers.

The Indian Tobacco Association here, a trade body, has decided to take a delegation to New Delhi shortly and meet Finance Minister Arun Jaitley, requesting him to roll back GST. "The GST council has imposed 5 per cent on tobacco leaves and 28 per cent on unmanufactured (raw) tobacco sold to domestic manufacturers or exporters. It will certainly hit the farmers and the trade hard. The industry is already passing through a crisis and this will further aggravate it," says M. Umamaheswara Rao, president of the ITA, appealing to the Centre to have a rethink on the issue.

blog comments powered by Disqus