ITC Battles Licit And Illicit Trade

Source from:  Tobacco Reporter 05/24/2011

The year to the end of March saw unprecedented market activity including new brand launches by global cigarette companies trying to gain a foothold in India, ITC said as part of its financial report. "The challenges in the market place were met by uncompromising and continuous value creation through innovative and differentiated products and investments in trade marketing and channel engagements," it said. "Inherent expertise in the areas of contemporary product development, cutting edge technology and robust go-to-market processes, combined with the company's deep consumer insights saw the launch of several new and exciting offers, in line with the strategy of continually meeting emerging consumer needs." "Lucky Strike was launched during the year, further enhancing the company's position at the premium end of the cigarette industry." "Classic and Gold Flake further strengthened their position through the launch of differentiated offers like Classic Menthol Rush, Gold Flake Sleek Line Kings and Gold Flake Arctic Menthol." "New variants of Gold Flake Premium Filter and Players Gold Leaf were also launched during the year." Despite the challenging market conditions, ITC said it remained 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. The company was less sanguine about other aspects of the marketplace, however. Disproportionate taxation, coupled with a growing incidence of smuggling and illegal manufacture, continued to comprise the biggest challenge for the Indian cigarette industry. "In Western countries, the belief is that loading the cigarette sector with high taxation would lead to a reduction in overall tobacco consumption," ITC said. "This approach, when followed in India is flawed as it overlooks the critical fact that, in India, cigarettes constitute less than 15 per cent of tobacco consumption whilst the larger proportion of tobacco consumption in the country is through other forms such as bidi, khaini, gutkha, zarda etc." "These products, over and above being lightly taxed, also avoid substantial taxes by virtue of being products of the unorganised sector." "Consequently, cigarettes, despite accounting for a minor portion of tobacco consumption, contribute more than 75 per cent of taxes raised from the tobacco sector." ITC said that the problem of "discriminatory" central taxation on cigarettes was exacerbated during the year under review with the central excise duty on cigarettes increasing by 17 per cent from March 2010. In addition, many state governments had been increasing the rate of VAT over the years. These rate increases by the states were completely against the basic tenets of VAT enshrined in the white paper on VAT issued by the Empowered Committee of State Finance Ministers. The legitimate domestic industry was said to be grappling, too, with another tax-related and complex problem - the burgeoning illegal trade in cigarettes that, as recent independent international market studies had shown, accounted for more than 16 per cent of the total industry size. "The high rates of central excise and VAT has helped fuel the menace of illegal trade in cigarettes…," ITC said. "As per recent independent international market research, India now ranks sixth globally in illicit cigarette trade with one of the highest growth rates in the world - 58 per cent over the period 2004-2009." Enditem