NEW DELHI, 21 June-2014, ET: In what can make a smoke dearer but possibly keep more people off the puff, the union health minister Harsh Vardhan has asked the finance ministry to raise tax on cigarettes of all lengths by Rs 2 to 3.5 per stick. In a letter sent on Thursday, Vardhan urged finance minister Arun Jaitley to raise tax on retail price of cigarettes from 45% to over 60% in the upcoming Budget.
This, he said, would add Rs 3,800-crore revenue to government coffers and save atleast 4 million lives. Even though the previous government had raised tax on cigarettes by about 19% in February 2013, it was too little to have a meaningful impact on cutting consumption, Vardhan said.
Higher taxes then were also targeted at long length cigarettes, which the industry smartly tried to evade by switching to increasingly make low length sticks. “Raising the proportion of specific tax on cigarettes as a percentage of their retail price from about 45% to over 60% of the retail price of cigarettes would conservatively— lead to about 3 million smokers quitting and nearly 3 million children not starting” Vardhan reckoned in his letter, adding that the higher tax burden would be borne mostly by upper income groups.
Even with this substantial hike, cigarettes and bidis would remain a very profitable business, Vardhan said.
And this would mean no net loss of jobs in bidi industry.Admitting that a step like this may modestly swell cigarette smuggling, the health minister claimed that reduced smoking and rise in tax revenue would more than compensate for that. “Experience from other countries suggests that the cigarette industry itself promotes smuggling to gain marketshare and to bolster their argument against higher taxes” the health minister said.
The move, if implemented could hit companies such as ITC, Godfrey Phillips India and VST industries, which account for over 90% of the total marketshare in the country. While ITC’s brands Navy Cut, Wills Classic and Gold Flake dominate the premium segment, GPI’s brands such as Four Square, Red & White and Cavenders occupy the midprice segment.