Budget 2020

Budget 2015: Jaitley shifts focus to cheap cigarettes

Arvind Jayaram BL Research Bureau | Updated on January 24, 2018 Published on February 28, 2015


Finance Minister Arun Jaitley believes vice should come at a price, as evidenced by the excise duty hikes he has imposed on cigarettes in successive Budgets. But this year, Jaitley has chosen to focus his efforts on the cheapest categories of cigarettes as part of what he dubs measures to promote public health, while going a bit easy on the more expensive brands.

While excise duty on cigarettes of length not exceeding 65 mm, such as Flake and Four Square, is being ramped up by 25 per cent, longer varieties — such as Classics and Gold Flake Kings — will only attract a 15 per cent hike in excise duty. Last year, too, Jaitley raised the excise duty across categories of cigarettes by 11 per cent to 72 per cent. But this year is different because while longer cigarettes are usually subject to bigger hikes, the Government seems less wary of penalising the poor workers that are the biggest consumers of sub-65 mm cigarettes for a change, sending a message that smoking is harmful to everybody

Smokers are used to being targeted by the Government every year as a source of additional resources through higher taxes and major tobacco firms like ITC and Godfrey Philips are usually not shy about passing on the increased tax burden to consumers through higher prices. Cigarettes are taxed over 47 times as compared to other tobacco products in India, according to the Tobacco Institute.

The Government, too, seems to have come to the conclusion that raising taxes has not hurt tax revenues from the tobacco industry. Indeed, even though there was a 9 per cent dip in the volume of cigarettes sold by Indian tobacco companies in 2013-14 on account of a 40-55 per cent price hike in the previous two years, excise collections were up by 2 per cent in the wake of upward revisions of excise duty by 22 per cent and 17 per cent in the previous two years.

The rise and rise of cigarette prices, however, has also led to ferocious growth of a black market for illegal and fake cigarettes, which are cheaper by virtue of evading taxes. Legal cigarettes account for less than 12 per cent of the tobacco consumed in India due to prolonged punitive taxation. Only 10 per cent of adult Indian males smoke cigarettes as compared to 16 per cent who smoke biris and 33 per cent who use smokeless tobacco, according to the Global Adult Tobacco Survey India 2010. Despite this, cigarettes account for 75 per cent of total tobacco revenues, as roughly half the retail price of a pack of cigarettes goes toward excise duty. ​

Published on February 28, 2015

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