Comments
The 16 per cent increase in National Calamity Contingent Duty (NCCD) on specified cigarettes proposed in Union Budget on Wednesday is likely to lead only to a single-digit price hike which can be absorbed by consumers.
Delivering her budget speech on Wednesday, Union Finance Minister, Nirmala Sitharaman said, NCCD on specified cigarettes was last revised three years ago. “This is proposed to be revised upwards by about 16 per cent,” she said.
According to industry experts, the exact picture of the impact will emerge only after the fine print of the proposal is available.
NCCD accounts for a very small percentage of the overall tax rate on cigarettes, said an analyst. So a mere 16 per cent hike in NCCD is not likely to translate into a very big component in the overall tax structure. It may hardly lead to 1.5 per cent kind of tax hike on cigarettes. It needs to be seen whether companies pass it on to consumers or absorb the same.
Even if companies decide to pass on the price hike, the increase would primarily happen in the premium category cigarettes in the 70-75 mm and above size. A marginal price rise in the segment is likely to be easily absorbed by consumers. The mass and semi-premium cigarettes, which are typically sized between 64-69 mm are not likely to witness a price rise. This segment incidentally accounts for nearly 60-70 per cent of the overall sales volume.
“If it is only a 16 per cent increase in NCCD for cigarettes (which as of now seems the case), then the overall impact is negligible. This increase seems lower than our and street expectations, so a positive for ITC and other cigarette companies... but need to wait for documents for full clarity,” Abneesh Roy, Executive Director, Nuvama Institutional Equities, said in a note.
From FY13 to FY17, duty on cigarettes increased sharply at a CAGR of 15.7 per cent. However, tax revenue from cigarettes grew a mere 4.7 per cent CAGR. Thereafter, relative stability in taxation was observed until January 2020, revenue collections grew by 10.2 per cent.
The budget for FY21 increased the NCCD by 2-4X across cigarette stick sizes, resulting in tax hikes of 9-15 per cent. A sharp tax hike beyond 12 per cent could push consumers to smuggle cigarettes.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.