RESEARCH IT  >>  INDIAN ECONOMY  >>  BUDGET 2003

Tobacco Industry

  

Budget Measures

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    The FM has kept the excise duty structure more or less unchanged for tobacco sector. However, on cigars and other value added products he has increased the sales (value added tax) VAT to 16%.

      

    Budget Impact

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    The organised tobacco sector will heave a partial sigh of relief. However, the imposition of a 16% SVAT to value added products like cigars etc. will hamper ITC and other players growth strategy. These companies were looking to improve profitability through focus on value added products, which are relatively price inelastic. But overall, ITC and others seem to have got away this time.

      

    Industry wish list

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    Industry chambers favour that the specific excise duty structure based on the length of cigarettes should be continued.

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    Tobacco companies are hoping that a specific policy will be announced to discourage smuggling of contraband cigarettes.

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    The tax rebates on investments in tobacco plantations in backward areas should be continued.

     
       Key Positives
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    It’s a habit industry and hence, continues to thrive despite odds.

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    Being a habit industry, it finds it comparatively easy to pass on excise duty hikes, though lately there have been signs of a resistance to price hikes.

    		  
       Key Negatives
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    Heavily penalized through punitive taxation policies.

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    In 2001, tobacco companies suffered a double whammy. On the one hand, they were barred from sponsoring sports and cultural events and on the other, contraband cigarette volumes continue to thrive. Net result, volume growth turned sluggish.
  		• How was this sector impacted by: Budget 2002
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