Presenting the Budget 2020-21 in Lok Sabha on Saturday, Finance Minister Nirmala Sitharaman proposed to impose National Calamity Contingent Duty (NCCD) on cigarettes and other tobacco products.
However, no increase in duty was proposed on bidis.
"As a revenue measure, I propose to raise excise duty by way of National Calamity Contingent Duty on cigarettes and other tobacco products," the Finance Minister said.
Citing their serious health impact, many public health groups have been demanding higher levy on all tobacco products to discourage their sales and consumption.
Besides being in the highest GST slab of 28 per cent, cigarettes attract higher compensation cess under the new indirect tax regime. The public health groups have been advocating for raising the compensation cess uniformly on all cigarettes to Rs 5,463 per 1,000 sticks on cigarettes irrespective of their sizes.
The Budget announcement raising the excise duty on cigarettes saw leading FMCG major ITC's stock closing in red. The shares of the cigarette manufacturer closed 7 per cent lower at Rs 218.85 on the BSE.
Some industry experts said that increase in NCCD announced in the Union Budget 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.
Industry group Tobacco Institute of India (TII) said that illegal cigarettes have grown consistently in the country and now account for 1/4th of the Indian cigarette market.
Quoting Euromonitor International, TII said that India is now the fourth largest illegal cigarette market in the world with illicit cigarettes more than doubling from a level of 11.1 billion sticks in 2004 to 25.6 billion sticks in 2018, resulting in an annual revenue loss of Rs 13,000 crore for the Government.
( With inputs from IANS )