Large cigarette manufacturers may face rough seas ahead if the Centre’s plans to raise legal age for tobacco products consumptions is implemented.
The Centre drafted the Cigarettes and other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Amendment Act, 2020 to raise the age for allowing sale of cigarettes and tobacco products to 21 years from 18 years.
The provision is part of the new bill being piloted by the Union Health Ministry and seeks to further amend the Cigarettes and other Tobacco Products Act, 2003.
The bill however poses a problem for cigarette makers such as VST Industries, ITC and Godfrey Phillips who could face “potential headwinds as it will become more difficult to add consumers and will affect volumes by virtue of sale of only sealed packs being allowed,” Abneesh Roy, research analyst with Edelweiss told Business Standard.
Further for these companies, the development would also not pair well with the reports doing the rounds of increased goods and services tax (GST) hike on the product.
“Possibility of GST hike in the Budget or during any GST council meets remains high due to weak government finances amid the COVID-19 situation,” as per Motilal Oswal Securities.
The biggest hit is expected for ITC, which has diversified over the year but still depended on its cigarette business for 85 percent of FY20 earnings before interest and tax.
Roy however also expects that “weak enforcement of rules to limit damage as it will be difficult to monitor and implement this new law” and that crackdown on loose cigarettes will benefit large manufacturers.
Here are the amendments proposed in the bill:
>> "No person shall sell, offer for sale, or permit sale of, cigarette or any other tobacco product - (a) to or by any person who is under twenty-one years of age, and in an area within a radius of one hundred meters of any educational institution."
>> Section 7 is being amended to say, "Provided that the trade and commerce in cigarette or any other tobacco product shall be in sealed, intact and original packaging."
>> It also adds a provision, "No person shall, directly or indirectly, produce, supply or distribute cigarettes or any other tobacco products unless every package of cigarettes or any other tobacco products produced, supplied or distributed by him is having minimum quantity as may be prescribed."
>> Contravention of this Section 7 will lead to imprisonment of two years or fine going up to Rs 1 lakh and second conviction leading to prison for 5 years or fine going up to Rs 5 lakh.
>> The bill also has a provision for coming down on manufacture and sale of illicit cigarettes and tobacco products. Sale of illicit products will lead to punishment of imprisonment of 1 year and a fine of Rs 50,000 and a second conviction of imprisonment of 2 years and Rs 1 lakh.
>> The fine on manufacture of illicit cigarettes is imprisonment of 2 years and fine of Rs 1 lakh.
>> The penalty for smoking at restricted areas is being increased from Rs 200 to Rs 2,000.
>> The amendment on advertising says, "No person shall directly or indirectly advertise cigarettes or any other tobacco products through any medium and no person shall take part in any advertisement that directly or indirectly promote the use or consumption of cigarettes or any other tobacco products."
>> In the Preamble, after the words "…..take concerted action to eventually eliminate all direct and indirect advertising, promotion and sponsorship concerning tobacco" the words, "AND WHEREAS, India is a signatory to the World Health Organization Framework Convention on Tobacco Control (WHO FCTC) adopted in Geneva, Switzerland on 21st day of May, 2003 which came into force on the 27th day of February, 2005" will be inserted.