Budget hits smokers hard

Cigarette companies, reeling under depressed sales, expressed their inability to absorb the new excise burden. The Union Budget has imposed a 5 per cent excise duty hike on all segments of cigarettes.quot;The excise hike of 5 per cent translates into an additional burden between Rs 250 and Rs 270 for the industry. This roughly represents the entire profitability of the industry. How can we absorb this hike?quot; said Godfery Phillips India Ltd GPIL chief executive Ram Poddar.

quot;We have to pass on the burden to the consumer over the course of time,quot; he added.

GPIL controls 25-30 per cent of the cigarette market. Its flagship brand is Four Square. The Hyderabad-based Vazir Sultan Tobacco VST, which has the Charms and Charminar brands in its stable, also felt that a rise in cigarette prices was round the corner.

quot;The excise hike will have to be passed on to the consumer,quot; said VST Industries Limited vice president C K Sharma. He added that cigarette companies will have to balance costs of cigarette with their affordability.

quot;Cigarettes are very price sensitive, and sales are quick to get impacted by a price rise,quot; added Sharma.

Market leader ITC Ltd refused to comment on the effect of the excise hike. Hoarders, incidentally, have been stocking cigarettes for the past two-three weeks in anticipation of a price rise after the budget.

The Tobacco Institute of India TII, the representative body of the cigarette industry, termed the as quot;very disappointingquot;.

quot;We were not expecting an excise hike. The excise hike on cigarettes is not consistent with the Government policy of broadening the tax base by keeping taxes low,quot; said TII director Amit Sarkar.

He also said that the excise hike on cigarettes was not in line with the scheme of placing a cap on the Cenvat stated by finance minister Yashwant Sinha.

Meanwhile, the cigarette industry is still in the process of calculating the extension of Modvat credit to the industry. Cigarette companies feel that this benefit will not help them much. It will result in savings of 1 per cent in tax.

The fortnightly payment of excise in arrears made possible by the budget will benefit the cigarette industry. Cigarette companies said that the budget will not contribute towards checking the fall in cigarette sales. Cigarette sales in 1999-2000 recorded a 5-6 per cent drop as compared to the previous fiscal.

A rise in prices of cigarettes, resulting in consumers shifting to other forms of tobacco consumption such as gutka, bidis, and tobacco chewing, combined with the increasing number of health-related legislations and a ban on cigarette sales at railway platforms are the factors responsible for the fall in sales.