In an exclusive interview to CNBC-TV18’s Latha Venkatesh, Anuj Singhal, and Sonia Shenoy, KK Modi, President & MD at Godfrey Philips India spoke about outlook going forward for the cigarette industry and the impact of GST on the industry.
Anuj: First thoughts on the whole goods and services tax (GST) chatter and your first reaction on what is happening on that and the kind of rates that are being fixed. Do you get a sense that the cigarette industry finally is getting something better than what you have been getting for last many years?
A: First on GST, I think good time for India is coming. There is a great speed at which GST is being now implemented. There is an atmosphere of consensus. State and center can come to decision very fast. This is good for industry and I congratulate Narendra Modi and Arun Jaitley for taking the initiative on GST which will bring prosperity throughout India.
Latha: About your own company and your industry, the current tax caps, the GST cess caps that we have been told, can you tell us how much you pay now through the various excise and sales taxes and how much is it likely to be in the new regime?
A: We don’t know these are caps or the maximum rates which have been announced. Much will depend upon how this will be implemented. Cigarettes which is the main product of our company, are sold at different prices for different class of consumer. The cheapest cigarette is at Rs 3 per cigarette or Rs 3,000 per thousand sticks and the cap is Rs 4,000 per thousand sticks.
So, if that cap is applied on cheapest cigarette, then there will be a great disability. So, we have to wait with the announcement of actual employment of the tax structure. It is good the government wants to bring stability, there is a move to announce a cap, but implementation of that will decide the fate of the industry.
Sonia: Can you tell us at this point how much does the company pay in terms of VAT, and excise to the center?
A: It is a very complex calculation because there are VAT rates in different states, there is excise duty, additional excise duty, entrance taxes, but roughly 60 percent of cigarette price accounts for taxes and the next is for products and manufacturing cost.
Latha: The equity market are in the assumption that you will not pay more taxes in the new regime. You are not so sure looks like because if that Rs 4,170 cap came on your Rs 3 cigarettes, you will end up paying more?
A: I am not sure, the industry is expecting the government will take a very rational decision and cap is just for the upper limit, and not the average of the industry. Industry is hopeful with the atmosphere of stability. There will be good progress in all industries including cigarette industry.
Sonia: On the Philip Morris agreement, the licence agreement, I just wanted to understand when is the renewal due?
A: Philip Morris is a partner, so, as long as they are equity holders in our company, I hope the agreement will continue. If any renewal is necessary, it will be forthcoming.
Latha: You are pretty sure they won’t want to chart-out on their own?A: I don’t think this is envisaged in the present arrangement. Present arrangements, both Philip Morris and Modi’s will remain together in this business.