Smoking cigarettes has always been considered harmful for health, but now this habit is going to be heavy on the pocket too. The Central Government has decided to make major changes in the tax system on cigarettes, tobacco and pan masala. New excise duty will be imposed on these products from February 1, after which it is expected that there will be a sharp increase in their prices. The government has decided to impose heavy excise duty directly by removing the GST compensation cess being imposed till now. This simply means that all tobacco related products will become more expensive than before.
The Finance Ministry has amended the Central Excise Act, which will be effective from February 1. According to the new rules, excise duty on cigarettes has been increased manifold. Now the rate of excise duty on every 1000 cigarettes has been fixed from Rs 2050 to Rs 8500. This tax on certain categories of cigarettes can even reach Rs 11,000. The tax rate will depend on the length and category of the cigarette. Where earlier the excise duty was limited to a few hundred rupees, now it has been increased manifold. Along with this, 40 percent GST already applicable on cigarettes will also continue. In this way the total tax burden can reach 60 to 70 percent, which earlier was around 50 to 55 percent.
What will be the impact on cigarette prices after February 1?
The new tax system will have a direct impact on the retail prices of cigarettes. According to market experts, the price of cigarettes which are currently available for around ₹ 18, may increase to ₹ 70 to ₹ 72. This means that even cheap everyday cigarettes will now become expensive for the common consumer.
Not only cigarettes, other tobacco products will also become expensive
The impact of the new excise duty will not be limited to cigarettes only. There are preparations to impose 60 to 70 percent excise duty on raw tobacco also. Up to 100 percent tax can be imposed on e-cigarettes and other nicotine related products. Apart from this, health and national security cess will also be implemented on products like pan masala and gutkha. It is clear from this that the government’s focus is on making all types of tobacco and drug related products expensive.
Why are experts expressing concern?
While the government’s objective is said to be to discourage drug addiction and increase health awareness, many experts are also expressing concern about this decision. He says that increasing the tax will make people give up cigarettes, it is not necessary. According to experts, due to high prices people may turn to cheap and illegal cigarettes. Organizations like Think Change Forum believe that excessive taxes can encourage illegal markets.
Danger of smuggling increasing
India is already one of the largest illegal cigarette markets in the world. According to available data, about 26 percent of cigarettes in the country are sold without tax. Brokerage firms JP Morgan and Nomura believe that after the huge tax increase, people may abandon legal cigarettes and buy cheap smuggled cigarettes. If this happens, the government will not be able to get tax revenue as expected and illegal business may be encouraged.
Impact on tobacco farmers and employment
Tobacco farmers’ organization FAIFA has also expressed concern over this decision. The organization says that increasing the tax will reduce the demand for legal cigarettes, which will have a direct impact on the income of tobacco farmers. The area under tobacco cultivation has already decreased in the last few years, while the costs of fertiliser, labor and production have been increasing. In such a situation, the tax increase may affect the livelihood of farmers and millions of people associated with this industry.
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