Budget 2023: How rising taxes on cigarettes are burning a hole in the smoker’s pocket

Cigarettes: National calamity contingent duty increased by 16 percent on specified cigarettes. Cigarettes will get more expensive.

Finance Minister Nirmala Sitharaman proposed a 16 percent increase in the National Calamity Contingent Duty (NCCD) on cigarettes in her budget on February 1.

Although the NCCD on specified cigarettes was last revised three years ago, cigarettes have been among the government’s favourite ways to hike taxes over the years, burning a hole in the pocket of smokers in the process.

The excise duty on filter cigarettes of length up to 70 mm has gone up to Rs 510 per 1,000 sticks from Rs 440. Filter cigarettes between 70 mm and 75 mm in length had their excise duty hiked to Rs 630 per 1,000 sticks from Rs 545.

Rising taxes

Taxes on cigarettes as a percentage of their total price have increased steadily over the years. In 2008, 46 percent of the money spent on the most popular brand of 20 cigarettes went in taxes. By 2020, this figure had gone up to 58 percent.

The year 2020 was when one of the biggest hikes in tax on cigarettes was levied as excise duties went up by 212-388 percent, depending on their size and type.

Declining affordability

This has had a significant impact on the total price of cigarettes in India. A pack of 20 cigarettes that cost Rs 58 in 2008 went up to as much as Rs 190 in 2020.

Not surprisingly, the rise in cigarette prices has affected their affordability in India. According to data from the World Health Organization, the percentage of GDP per capita required to purchase 2,000 cigarettes of the most popular brand of cigarettes went up from 11.1 to 13.78.

Declining prevalence

While cigarettes have become increasingly unaffordable, data also shows a decline in the prevalence of smoking in the country. According to WHO estimates, India had a 20.8 percent tobacco smoking prevalence in 2008. This came down to 8.6 percent by 2019.

Meanwhile, the markets seem to have their faith in the industry. After intraday losses, cigarette company stocks rebounded strongly during the second half of the day.