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Sunday, Jun 06, 2004

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Tobacco industry plea for exemption from VAT regime

Anil Sasi

New Delhi , June 5

THE tobacco industry is planning to ask the Government to exclude the sector from the proposed value-added tax (VAT) regime and seek withdrawal of the 15 per cent excise surcharge being levied as the National Calamity Contingency Duty.

The industry is also set to clamour for the retention of the specific duty structure on cigarettes, opposing any move towards an ad-valorem duty structure.

According to the Tobacco Institute of India (TII), the representative body of the organised tobacco sector, the other major demands proposed to be highlighted by the industry in the run-up to the Budget-making process include the need for narrowing down the difference in the tax rates between cigarettes and other tobacco products, especially with new tobacco legislation coming into force. The institute is in the process of compiling its suggestions for the forthcoming Budget.

TII was also planning to seek a hike in basic customs duty on cigarettes to the bound rate of 150 per cent to prevent cheaper imports in the run-up to the forthcoming Exim Policy, executives said. Justifying its decision to seek exemption for cigarettes from the VAT regime, a Godfrey Phillips India (GPI) executive said that for an industry like the tobacco sector where the tax incidence (union excise duty) was already very high, a single point levy, such as the present additional excise duty (AED), was preferable over a multi-stage levy, such as VAT.

The AED is levied on three items by the Union Government, namely, sugar, tobacco and textiles. It is levied in States, which impose sales tax on these three items. Several State governments have proposed to bring the items under the VAT net, once it replaces the sales tax regime.

According to a TII representative, cigarettes are subjected to punitive and discriminatory taxation, which is 21 times more than that on bidis and 17 times greater than several other forms of tobacco, which are consumed on a much larger scale in the country. A regressive domestic tax regime also gave a boost to contraband cigarette sales, they contend.

Cigarettes account for only 14 per cent of tobacco consumption in India, while contributing almost 80 per cent of the excise duty collection. It also forms nearly 85 per cent of exports from tobacco.

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