Budget 2015: Cigarette prices to go up by 10-15%

KOLKATA: Smoking is going to be costlier yet again with the budget increasing excise duty on cigarettes and cigars for the fourth consecutive year.
While the cigarette makers are yet to formulate the exact price hike, analysts at Edelweiss and Religare estimate prices of smaller sized cigarettes (those below 65 mm in length) -- which are currently sold at below Re 3 per stick -- is likely to go up by 50 paise per stick. And prices for regular and king size cigarettes is expected to go up by 10-15%.

The budget proposed 25% increase in excise duty on cigarettes of length not exceeding 65 mm and by 15% for cigarettes of other lengths, cigars, cheroots and cigarillos. The budget has also increased the excise duty on cut tobacco from Rs 60 per kg to Rs 70 per kg.

In the last three years, excise duty rates on cigarettes has increased by a cumulative 75%. After the 22% weighted average increase in excise duty in the July 2014 interim budget, cigarette sales volume declined by around 15% -- double digit decline for the first time in several years.

Edelweiss Securities associate director (institutional equities – research) Abneesh Roy said the 16% weighted average increase of excise duties on cigarettes would have an impact on ITC’s cigarette volume growth. “We expect volume to decline by 7-8% in FY16 as compared to 9% volume decline in FY15,” he said.

Share price of ITC, which was in positive territory during the Budget, crashed after the announcement in excise duty on cigarettes. ITC at 2:30 pm fell by 8.41% at Rs 360.70 on the Bombay Stock Exchange, while Godfrey Phillips India fell by 3.36% to Rs 463.

Analysts said the fact that the government increased taxes again despite the fall in government earnings from cigarette in the last quarter indicates its intention to curb smoking.

However, there has been no increase in tax rate on bidis and chewing tobacco. The cigarette industry body, The Tobacco Institute of India has been shouting on how this trend of taxing cigarettes is triggering consumers to shift to cheaper non-cigarette tobacco products such as bidis and chewing tobacco, and growing the sales of duty evaded smuggled and illegal cigarettes.

The industry body estimates that while tobacco consumption in the form of legal cigarettes has declined by 21%, consumption in the form of non-cigarette tobacco products and illegal cigarettes has increased by 59% since 1981-82. During the same period, overall tobacco consumption in the country has grown by 42%.