The mandate of the group includes analysing current tax structure of all forms of tobacco, including smokeless tobacco, and suggesting various tax rate models for consideration in the preparation of FY23 and future Union budgets.
Key points to note –
- The idea is to have a road map for reducing tobacco demand as per World Health Organization’s (WHO’s) plans – public health perspective.
- Tobacco is already a high taxed commodity. It is kept in the 28% GST slab (other than for tobacco leaves which is taxed at 5%). Tobacco and its various forms are also subject to a heavy burden of cess.
- The total tax burden (taxes as a percentage of final tax inclusive retail price) is about 52.7% for cigarettes, 22% for bidis and 63.8% for smokeless tobacco. This is lower than the WHO recommended tax burden of at least 75% of retail price for all tobacco products.
The news came as a shock to the investors and all the related stocks came under selling pressure.
Increase of taxes on tobacco product is always a concern in investors’ mind – though history has shown that ultimately they neither impact the demand much and nor the profits of the Companies.
The noise always becomes louder as the budget starts nearing. This may especially be more so currently as tobacco has not seen major tax increases since the introduction of GST in 2017.
It would not be unreasonable to expect some increase in this budget. However, the real impact of that on the financial performance of the Companies is something that I am not overly worried about – unless it’s a very significant increase !