Budget 2004: Tobacco
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Excise duty on nicotine reduced from 16% to 8%. |
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Henceforth, state levies cannot exceed 4% on tobacco |
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Other than this, the FM has kept the excise duty structure more or less unchanged for tobacco sector |
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For the second year in a row, Budget 2003-04 has pleasantly surprised tobacco companies. The proposal to cap state levies on tobacco is very positive for the sector, as some states charge levies at around 10% on tobacco companies. Measures are positive for industry leader, ITC.
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| Industry chambers favour that the specific excise duty structure based on the length of cigarettes should be continued. |
| Tobacco companies are hoping that a specific policy will be announced to discourage smuggling of contraband cigarettes. |
| The tax rebates on investments in tobacco plantations in backward areas should be continued. |
| Additional duty of excise (AED) on cigarettes at specific rates should continue even after implementation of VAT. |
| Budget 2000-01 |
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Budget 2001-02 |
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Budget 2002-03 |
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| No specific measures |
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Imposed 15% surcharge on excise duty for cigarettes
Excise duty on 'bidis' increased from Rs 6 to Rs 7 per thousand bidis
Total duty on pan masala increased to 55%-60%
Tobacco products like chewing tobacco would be charged a total duty of 60%
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The excise duty structure remains more or less unchanged for tobacco sector
Sales (value added tax) VAT increased to 16% on cigars and other value added tobacco products
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[Read more on Budget 2001-02] |
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[Read more on Budget 2002-03] |
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| Key Positives |
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| It's a habit industry and hence, continues to thrive despite odds like punitive taxation, ban on smoking in public places and restrictive advertising. |
| 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. |
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| Key Negatives |
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| Heavily penalized through punitive taxation policies. Tobacco companies pay roughly 50% of their revenues as excise. As per CII estimates, during the year 2001-02, cigarettes production has shown a negative growth of 11%. Infact the industry has registered declining volumes for the 3rd consecutive year. |
| Domestic tobacco companies suffer a double whammy. On the one hand, they are barred from sponsoring sports and cultural events and on the other contraband cigarette volumes continue to thrive. Net result, volume growth turned sluggish. |
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