A group of farmers from Andhra Pradesh and Karnataka have written to the Prime Minister and the Union finance minister expressing concern over the proposed plan to introduce value-added tax (VAT) on cigarettes. They have said that the introduction of VAT on the ?already over-taxed? cigarette would not be in the interest of tobacco growers. They have also decided to make their submission before the Empowered Committee of the States on VAT, before it meets on January, 2007.
Cultivation of tobacco is regulated by the government and about 700 million kg of tobacco leaves are produced annually, out of which Virginia tobacco leaves, which are used in cigarettes, amount to only 240 kg. About 20% of Virginia tobacco is used for the production of cigarettes and the remaining quantity is exported.
The government?s taxation policy is based on discouraging the consumption of tobacco as it is found to be injurious to human health. However, BV Javaregowda, member of the Tobacco Board said, ?The incidence of taxes on cigarettes is already higher than that on other tobacco products like beedis, cigars and cheroots, chewing tobacco, pan masala and snuff.?
Basic excise duty ranging from Rs 125 to Rs 1,645 per 1000 sticks is imposed on various categories of cigarettes. There is a 2% education cess on the basic excise duty. Also National Calamity Contingent Duty (NCCD) ranging from Rs 20 to Rs 235 per 1,000 sticks is imposed on various categories of cigarettes. Additional duty ranging from Rs 15 to Rs 180 per 1000 sticks is also imposed.
The categories of cigarettes are defined in terms of the length of the stick and whether the stick has a filter at its tip or not. ?The total tax burden works out to Rs 160 to Rs 2,060 per 1,000 sticks of various categories of cigarettes,? said Javaregowda. The president of Nellore & Prakasan Districts Tobacco Growers Association, Garikapati Seetharamaiah said, ?If VAT is imposed on cigarettes it would become costly and the consumers? preference would shift to imported cigarettes or cigarettes smuggled into the country through illegal channels. As a result the domestic industry would suffer and would not procure tobacco leaves from growers in desired quantities.? Seetharamaiah is the former vice- chairman of the Tobacco Board.
The general secretary of the Guntur-based Tobacco Growers Welfare Association, Gadde Sivaram Prasad made a point by saying, ?Global leaf supply is projected to decline due to short supply in Zimbabwe, Canada and Europe. In this context, India is well posed to increase its exports. The government should encourage its production.?