Tax Structure

Multiple length based, Specific duty structure best suited to India

Until February 1987 cigarettes were taxed under an Ad-valorem excise structure, which had many infirmities. For a highly taxed product like cigarettes, it resulted in valuation disputes, litigation with large amounts of revenue locked up, fraudulent suppression of value and ambiguity. In fact, in an attempt to reduce the excise liability, costs and prices were kept at unrealistically low levels, resulting in:

  • A reduced rate of growth in excise duty collections
  • An adverse impact on farmer incomes and exports as demand for low cost/quality tobacco took precedence over investments in crop development
  • Poor product quality as the multiplier effect of the ad-valorem structure discouraged value-addition
  • An impetus to smuggling as the premium domestic brands were unable to compete on price with smuggled brands

Recognizing the problems related to the Ad-valorem levy of excise, a length based, Specific duty structure was introduced in 1987. The new structure:

  • Catered to India’s wide income distribution through multiple length slabs, providing consumers with alternative price points based on their ability to spend
  • Provided a ladder for up trading to higher revenue yielding products with growing per capita incomes
  • Ensured buoyancy and efficiency of tax collections through a transparent and easily administered system
  • Eliminated valuation disputes and litigation
  • Enabled value-addition and quality improvement
  • Improved farmer earnings with demand for better quality higher price tobaccos
  • Facilitated investments in crop development

The efficacy of the specific levy, from a revenue perspective, can be gauged from the fact that on a comparable volume base the growth in revenue has increased more than 15 times in the last 30 years.

Excise Duty on Cigarettes in Rupees per 1000 sticks

Type/ Length of Cigarettes (mm) 2013-14 2014-15 2015-16 2016-17 2017-18
Plains
Upto 65 689 1185 1440 1585 1681
>65 to 70 2088 2318 2590 2850 3021
Filters
Upto 65 689 1185 1440 1585 1681
>65 to 70 1451 1700 1900 2090 2216
>70 to 75 2088 2318 2590 2850 3021
Others (>75 mm) 3389 3389 3790 4170 4421

Specific duty structure based on cigarette length – the duty rates include all duties (BED, NCCD which was introduced w.e.f. 2001/02 and Additional Duty levied w.e.f. March 1, 2005). The above figures (upto the year 2014-15) exclude 2% education cess imposed in the Union Budget in July 2004 and 1% Secondary & Higher Education Cess levied w.e.f 1st  March 2007 (Union Budget 2007-08). Lowest Length <60mm revised to <65mm (Union Budget 2012-13) >75mm to 85mm slab omitted  w.e.f. 10th July 2014 (Union Budget 2014/15). Education Cess (3%) has been  subsumed in Basic Excise Duty w.e.f. 1st  March 2015 (Union Budget 2015-16).

Excise Duty on Bidis in Rupees per 1000 sticks

Type 2013-14 2014-15 2015-16 2016-17 2017-18
Other than paper rolled manufactured without the aid of machines 11 11 11 11 11
Manufactured with machines with or without power 23 23 23 23 23
Workers Welfare Cess 5 5 5 5 5

Above rates exclude 2% education cess on Excise announced in July 2004 and 1% Secondary & Higher Education cess imposed w.e.f. 1st March 2007 (Union Budget 2007-08). Total exemption of duty for first 2 million clearances per annum for unbranded product. Workers welfare cess increased from Rs. 2 per 1000 to Rs. 4 w.e.f. April 1, 2005 and now to Rs. 5 w.e.f. April 1, 2006. Duty increases announced in Budget 2007-08 on Feb 28, rolled back from Rs. 11 to Rs. 9 and Rs. 24 to Rs. 21 on Beedis (handmade and machinemade resp. on May 3, 2007)