Higher Tax on Cigarettes Keeps Industry Under Pressure: ITC

New Delhi: ITC on Saturday said it has to bear an incremental tax burden of over 20 percent due to the combined impact of an increase in excise duty in budget 2017 and revision in GST compensation cess on cigarettes.

The cumulative growth in tax incidence on cigarettes, after cognising for the latest increase in cess rates, stands at 202 percent in last six years, ITC said in its earnings release.

"The combined impact of an increase in excise duty announced by the Union Budget 2017 and the revision in GST compensation cess resulted in an incremental tax burden of over 20 percent on the company," it added.

ITC said cigarette volumes remained under "severe pressure" due to "sharp increase in tax incidence and intense regulatory pressures".

The sharp upward revision in GST compensation cess announced by the GST Council at its meeting on July 17, 2017 "exacerbated the situation", ITC said.

After the implementation of GST on July 1, the government on July 17 had hiked the limit of cess to be levied on cigarettes as it felt that the industry was reaping a windfall gain as the tax rate was lower than what it was in the pre-GST era.

On top of the 28 percent tax, the GST Council, comprising Centre and states, hiked the compensation cess levied on cigarettes.

The government while hiking the cess rate had said it was being done to ensure that tax rates in pre and post GST era remains the same.

"....the upward revision resulted in significantly higher tax incidence on cigarettes compared to the pre GST scenario which is not in keeping with the fundamental principle of revenue neutrality," ITC said.

The move has also affected the legal cigarette industry volumes, which had remained under severe pressure due to high in tax incidence and regulatory pressures, it added.

"It is apprehended that the sharp increase in tax incidence as aforestated will severely undermine the legal cigarette industry and adversely impact tobacco farmers," it added.

The company today reported 16.75 percent increase in standalone net profit at Rs 3,090.20 crore for the December quarter.

Revenue from cigarettes, however, stood at Rs 4,629.19 crore. It was Rs 8,287.97 crore in the year-ago period.