High duty on cigarettes to affect revenues: PHDCCI

New Delhi, June 5 (UNI) Industry body PHDCCI today urged the Uttar Pradesh government to reconsider the tax imposition on cigarettes at 32.5 per cent to stop its large scale smuggling in the state.

''The price rise can lead to supply of contraband cigarettes in the state and hence can promote smuggling affecting the revenue collection of the state,'' it said in a statement.

PHDCCI suggested the total incidence of taxes should be at 12.5 per cent including the entry tax as the case is in other states.

The incidence of excise duty and other taxes account for almost 150 per cent ex-factory value of the cigarettes.

The state also levies entry tax at the rate of five per cent. Since the sale of cigarettes is highly price elastic, even slight movement of price upwards will adversely impact the revenue collection, resulting in decline of demand, it added.

''The high incidence on cigarettes will force the consumers to shift to cheaper alternate forms of tobacco, which in turn, will affect the revenue collection.'' UP receives about Rs 487 crore annually from cigarette taxes, in lieu of Additional Excise Duty (AED) from the proceeds of the sharable central taxes.

The state government has recently increased the rate of tax payable on cigarettes to 32.5 per cent. This applies to cigarettes either manufactured in the state or imported into the state.

''The unilateral decision of the UP administration to pitch the excise at 32.5 per cent is not in alignment with the decision of the Empowered Committee of State Finance Ministers (ECSFM) on VAT, to levy VAT on cigarettes at a uniform, maximum rate of 12.5 per cent.

All states and Union Territories are following this direction.'' The states also provide for a set-off of entry tax against VAT to keep the total incidence at 12.5 per cent. Importantly, consequent the imposition of the VAT on cigarettes, Rajasthan and Chhattisgarh has withdrawn the entry tax.

Indications are that Uttar Pradesh will switch over to VAT regime sooner or later. Two categories of goods and services have been identified by ECSFM, broadly termed as merit and non-merit goods.

UNI