Tax Specific Tactics Adopted by Indian Cigarette Industry

Cigarette industry's exploiting the consumers in the name of higher taxation, as well as avoiding/evading excise duty in the guise of tax planning is in vogue from time immemorial. The author has recorded them in a systematic manner which must be used by the policy makers as a tool to gauge such situation in future. This mechanism is adopted not only by cigarette industry but also other related industries manufacturing tobacco based products. As could be seen, the analysis of sale value of the product vis-a-vis the incidence of tax, the tax rates are in the decreasing trend, which is against the accepted norms of increasing the tax so that the sale of such hazardous product gets reduced. The quantity of sales by these industries are in the increase as the incidence of tax has come down. Policy makers are under the impression that the tax imposed will reduce sales, but the facts and ground reality is tax collected is not proprtionate to the increase in value of the product. At present the rates are fixed based on the length of the cigarettes and number. Past experience shows that fixing advalorem duty resulted in evasion of duty as the manufacturers either misdecalared the values or used dubious methods to collect additional money in cash.
In this regard it is suggested that the rates as prescribed now based on the length and number, must further be strengthened by bringing in the additional dimension by roping in 'the MRP element' also. Rate of duty may be fixed with a rider like.. 'or @x% on MRP, whichever is higher' so that the tax rates imposed are equivalant and equitable to the raise in prices. By doing so the incidence of duty will match with the increase in value of the product, which yields higher revenue to the public exchequer as well as discourages higher sale of this dangerous goods.

MG Kodandaram
Supdt NACEN
Bengalure

madihally kodandaram 19/07/2015