Budget 2020 India: The tax hikes, in effect, at the portfolio level is likely to be about 11%, which means the company would need to raise MRP by 6–7% to offset the same.
Budget 2020 India: With finance minister Nirmala Sitharaman proposing to raise excise duty on tobacco and cigarettes, analysts on Saturday said that for ITC, India’s largest cigarette maker, the increase in the National Calamity Contingent Duty (NCCD) component across cigarette sizes would result in tax hikes in the range of 9% to 15%.According to Edelweiss, the present hike in NCCD on different sizes of cigarettes is in the rage of 212.8% to 388.9% over the financial year 2017-18.After Sitharaman’s announcement on the proposed excise duty hike, by way of National Calamity Contingent Duty on cigarettes and other tobacco products, shares of cigarette and other tobacco-related companies took the biggest knock. While ITC’s scrip fell 6.97% to end the day at Rs 218.85 on the Bombay Stock Exchange, Godfrey Phillips was down by 6.39% at to close at Rs 1134.75.Commenting on ITC, Abneesh Roy of Edelweiss Research said, “The NCCD component has been increased by 2–4x across stick sizes. This has resulted in tax hikes in the range of 9–15% thereof. The tax hikes, in effect, at the portfolio level is likely to be about 11%, which means the company would need to raise MRP by 6–7% to offset the same.”We believe price hikes in the current slowdown environment are likely to be calibrated and, hence, cigarette Ebit growth is likely to be back-ended in FY21,” Roy added.Notably, ITC’s revenue from its cigarette business grew 4.68% y-o-y at Rs 5,310.98 crore during the third quarter this fiscal, while operating profit from the segment increased by 5.57 y-o-y at Rs 3,755.97 crore during the period.In a statement issued after declaring its December quarter results, the diversified conglomerate had on Friday said that performance of its cigarette division during the quarter reflected the persistent weakness in the overall demand environment, especially in rural markets and wholesale channel, tight market liquidity conditions and the increasing salience of illicit trade especially at the premium end.
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“Extremely stringent regulations along with a punitive and discriminatory taxation regime on cigarettes in recent years have had numerous negative, albeit unintended repercussions,” it added.In a release, the Tobacco Institute of India (TII), a representative body of manufacturers, farmers and exporters of the cigarette segment of the tobacco industry, said the increase in NCCD announced in the Union Budget 2020-21 and the resulting escalation in cigarette taxation leading to higher tax arbitrage will serve as a huge incentive to illegal cigarette trade operators, who target India as a preferred destination for smuggled cigarettes.