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Additional tax on cigarettes under GST will impact legal sales: ITC

LiveMint logoLiveMint 28-07-2017 PTI

New Delhi: India’s largest cigarette manufacturer ITC Ltd on Friday said that higher tax rate under the just introduced goods and services tax (GST) regime will “exacerbate” the pressure on the entire legal cigarette value chain.

The legal cigarette industry has witnessed a 25% decline in volumes from FY (financial year) 2012-13, said ITC.

“The additional tax burden caused by the increase in the compensation cess rates ... will exacerbate the pressure on the entire legal cigarette value chain in the country,” said ITC in its quarterly results.

The high incidence of taxation on cigarettes was further compounded by the steep increase in taxes announced by the GST Council on 17 July 2017, it said.

“The increase in compensation cess on cigarettes as announced by the GST Council ranges from Rs485 to Rs792 per thousand cigarettes. Under the ‘others’ segment i.e. cigarettes of length exceeding 75 mm (including the length of filter), a 31% increase in the ad valorem component of the cess has been levied,” said ITC.

The intent of the GST Council behind increasing the compensation cess was to correct an apparent anomaly in cigarette taxation under the new tax regime announced earlier, on account of the removal of the cascading effect of excise duty which existed in the pre-GST regime.

“However, such increase has resulted in significantly higher tax incidence on cigarettes under the new tax regime compared to the pre-GST scenario which is not in keeping with the fundamental principle of revenue neutrality,” it said.

In fact, the combined impact of increase in excise duty announced by the Union Budget 2017 and the recent increase in tax rates effected by the GST Council is estimated to result in an incremental tax burden of over 20% on the company.

“The cumulative growth in tax incidence on cigarettes, after cognising for the latest increase in cess rates, stands at a staggering 202% since 2011-12, i.e. the last six years,” it added.

However, ITC, which have brands that includes Wills Navy Cut, Gold Flake, Insignia, India Kings and Classic said that despite the extremely challenging operating environment, it sustained its leadership position in the industry through focus on delivering world-class products, continuous innovation and value addition.

In the first quarter of 2017-18, ITC’s revenue from cigarettes increased 6.60% to Rs8,774.16 crore, from Rs8,230.60 crore in the year-ago period.

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