The GST Council’s move to put a cap at which cess could be levied on tobacco products under the new indirect tax regime is a welcome development for the country’s cigarette makers such as ITC, Godfrey Phillips and Golden Tobacco, as for them the cap announced on the cess provides a certainty to the tax regime.
According to analysts, if the council finally decides to keep beedis, a cheap substitute to cigarettes, out of the cess net, it would be a ‘strange’ decision. The GST regime, however, can provide a “certain degree of level-playing field” between cigarettes and beedis as the latter will come under a uniform tax rate across India.
“Capping the rate of cess on cigarettes is a welcome development, because it provides certainty to the cigarette manufacturers on what could be the maximum rate of cess. Otherwise it would have been anything,” MS Mani, senior director, Deloitte India, told FE.
The council, in its meeting on Thursday, said the cess levied on tobacco could be either 290% or R4.17 per stick or a combination of both. In the meeting, no decision has been taken to levy cess on beedis as of now.“Yesterday, the council reportedly decided to exempt beedi from cess. This was a request made by the Kerala finance minister and that request has been accepted. His argument was that beedis are consumed by the poorer sections of the people, and therefore there should not be any cess on this product,” Mani said. “Now, I find it to be a little strange because both these products (cigarette and beedi) are equally harmful to health. So if the health aspects are considered, it does look very strange that two commodities, both of which are harmful to health, are being taxed in different manners,” he observed.
According to him, if the council finally decides to exempt beedis from a cess, it would drive more people from cigarettes to beedis as the latter would become cheaper.