Home / News / India /  Duty hike on cigarettes will have negligible impact on smokers: Experts

In the Union Budget 2023, the government announced a 16% hike in duties on cigarettes. While emphasizing that the hike will not have much impact on the price of cigarettes, experts said that it will have negligible impact on smokers and the industry will easily absorb the shock.

After the upward revision in National Calamity Contingent Duty (NCCD), the price of cigarettes is going to increase by a mere 7-12 paisa per stick across categories. The industry will comfortably absorb the shock and the effect on margins will be minimal, the experts argued.

While announcing the hike in cigarette duties during her budget speech on Wednesday, Union Finance Minister Nirmala Sitharaman said "National Calamity Contingent Duty (NCCD) on specified cigarettes was last revised three years ago. This is proposed to be revised upwards by about 16 percent."

"The upward revision in NCCD on cigarettes is not expected to have a material impact on the profitability of cigarette manufacturers. The hike of 15-16 percent will result in an increase in cost by 7-12 paise per stick across cigarette categories (based on size, filter, etc)," Crisil Ratings Director Anand Kulkarni said.

Kulkarni added that the profitability will be less than 1% and the credit profile of players will remain untouched.

Similar views were shared by Nuvama Institutional Equities Executive Director & Head of Research Committee Abneesh Roy who said that the duty hike was less than expected and will be easily absorbed by the consumer.

"This increase seems lower than our and street expectations, so a positive for ITC and other cigarettes companies," he said adding "cigarettes companies will need only low single-digit hike of around 2 to 3 percent, which is not much of an issue, given three years of hardly any increase in prices for the consumer, will be easily absorbed by consumer".

With the duty hike in the budget, the excise duty on filter cigarettes of length more than 70 mm but not exceeding 75 mm will go up to 630 per 1,000 sticks from 545 per 1,000 sticks while for filter cigarettes of length over 65 mm but not exceeding 70 mm will go up to 510 per 1,000 sticks from 440 earlier,

The same will be for filter cigarettes of length not exceeding 65 mm will be 510 per 1,000 sticks, up from 440.

In case the non-filter cigarettes for those with a length not exceeding 65 mm, excise duty has been hiked to 230 per 1,000 sticks from 200, and for those of length exceeding 65 mm but not exceeding 70 mm, it has been increased to 290 per 1,000 sticks from 250 per 1,000 sticks earlier.

(With inputs from PTI)

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