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The tobacco industry, which was expected to face a massive tax burden with the introduction of GST, appears to have been let off with a scratch.
While tobacco falls under the highest bracket of 28 per cent, the implementation of an additional cess is expected to keep the net tax rate in line with the existing rates for the makers of branded cigarettes.
In an analysis report, Motilal Oswal said: “On ITC, the effective rate of 28 per cent plus 5 per cent cess plus duty per stick amounts to the current rate of about 60 per cent, which means that the GST rate is neutral.”
The market seems to have welcomed the move, as evidenced in a collective spike in share prices of nearly all the leading tobacco companies — ITC, Godfrey Phillip, VST, Kotyhari Product, Golden Tobacco and NTC Industries.
However, Shekhar Salkar of the National Organisation for Tobacco Eradication expressed disappointment with the tax rates. Not just because the GST rate was kept at 28 per cent for branded cigarettes, but also because there is no clarity on how much taxes would be imposed on bidis.
“We wanted the GST rate for tobacco to be much higher. We expect that the final tax rate (after an additional cess is imposed) will remain flat or lower,” Salkar said.
Even as the government has not declared the provisional tax rate for bidis, it is expected to be about 18 per cent.
A decision is expected at the next GST Council meeting.
The bidi industry has traditionally not been taxed, considering socioeconomic aspects, as it employs villagers, especially in off-season periods when agricultural work does not generate significant income.
However, healthcare professionals and activists are unhappy with the tax rates.
“Going by the recommendations of the WHO and best practices across the globe at least a 70 per cent excise tax share should be in the final price paid by consumers. We are yet far from that,” said Monica Arora, Director, Tobacco Control Programmes for the Public Health Foundation of India.
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