ITC Bemoans Discriminatory Tax Regime

Source from:  Tobacco Reporter 01/25/2011

Cigarettes were missing from the "highlights" as ITC reported its results for the three months to the end of December - highlights that included the launch of Sunfeast Yippee Noodles in September. That is not altogether surprising. In its statement on its cigarette business, ITC reported that the first Global Adult Tobacco Survey (GATS) on India - India 2010 - had found that of the 34.6 per cent of adults in India who consumed tobacco in any form, only 5.7 per cent smoked cigarettes. The others consumed chewing tobaccos and/or smoked bidis. "Despite such a low share of tobacco consumption, cigarettes contribute the bulk of the tax revenues from the tobacco sector," ITC said. "Taxes realized from every kilogram of tobacco consumed in the cigarette format are 20 times higher than those from other forms of tobacco products. Such a deeply discriminating taxation regime is encouraging consumers to shift from cigarettes to cheaper and lightly taxed forms of tobacco consumption." "Consequently [this paragraph and the next were reproduced in bold], whilst consumption of tobacco in the cigarette form is on the decline, the overall consumption of tobacco in the country continues to rise. Paradoxically, the social objective of control of tobacco consumption in the country gets defeated even as the revenue potential of the tobacco sector as a whole is sub-optimised." "In contrast, a country like China, given its equitable tax regime and a practical regulatory framework, is able to collect tax revenues from cigarettes that are 13 times higher than that in India despite the rate of tax being half that of India. Clearly, there is a need to pursue a balanced taxation agenda which is equitable to all stakeholders, even as it progressively achieves the social objective of controlling tobacco consumption." "The organised industry continued to be impacted by the vacuum created by the exit of the popular low priced micros and plain non-filter cigarettes (in the wake of the heavy imposition of excise duties in 2008). This provided the headroom for tax-evaded cigarettes to enter the market in a big way. These tax-evaded cigarettes sell in the market at prices that do not even cover the cost of taxes payable thereon. These low priced tax-evaded illegal cigarettes are a growing threat to the legitimate industry, Government revenues, market stability and the social objective of regulating tobacco consumption (this sentence, too, was in bold). Such domestic tax-evaded cigarettes, which along with smuggled cigarettes are estimated to constitute more than 12 per cent of the Indian market, not only deprive the legitimate industry of revenues and profits that it rightfully deserves but also deny the Exchequer of its fair share of taxes. It is imperative that the authorities strengthen enforcement to eliminate this fast growing illegal industry." But the company ended on a high note. "Despite the challenging market conditions, the Company remains confident of leveraging its internationally benchmarked product quality, the resilience of its brands and the superiority of its competitive strategies to consolidate its leadership position in the industry." And this confidence will have been partly based on cigarettes' profitability. The company's pre-tax profits for the quarter were up by 19.4 per cent on those of last year, driven primarily by its Branded Packaged Foods, Agri and Cigarette businesses. Post-tax profits were said to have grown by 21.4 per cent. Net Turnover, meanwhile, grew by 19 per cent, driven by its Foods, Agri and Paperboards businesses. Enditem