tocacco plant Native American Tobaccoo flower, leaves, and buds

tocacco Tobacco is an annual or bi-annual growing 1-3 meters tall with large sticky leaves that contain nicotine. Native to the Americas, tobacco has a long history of use as a shamanic inebriant and stimulant. It is extremely popular and well-known for its addictive potential.

tocacco nicotina Nicotiana tabacum

tocacco Nicotiana rustica leaves. Nicotiana rustica leaves have a nicotine content as high as 9%, whereas Nicotiana tabacum (common tobacco) leaves contain about 1 to 3%

tocacco cigar A cigar is a tightly rolled bundle of dried and fermented tobacco which is ignited so that its smoke may be drawn into the mouth. Cigar tobacco is grown in significant quantities in Brazil, Cameroon, Cuba, Dominican Republic, Honduras, Indonesia, Mexico, Nicaragua, Sumatra, Philippines, and the Eastern United States.

tocacco Tobacco is an agricultural product processed from the fresh leaves of plants in the genus Nicotiana. It can be consumed, used as an organic pesticide, and in the form of nicotine tartrate it is used in some medicines. In consumption it may be in the form of cigarettes smoking, snuffing, chewing, dipping tobacco, or snus.

tocacco
Tobacco-Facts ads

Budget lights up cigarette industry

Retention of existing excise structure proves a big relief for the industry already reeling under high value-added tax burden

The budget pro-posal retaining the existing excise duty structure has come as a big relief for the cigarette industry. The industry, which feared a 6-8 per cent rise in excise duty this year, feels this may be able to offset the rise in value added tax.

Production
Cigarette production in India increased from 87,568 million pieces in 2001-02 to 113,835 million pieces in 2006-07 — a 30 per cent rise. However, past two years have seen a slight decline in output. In financial year 2008-09, cigarette production dropped to 109,231 million pieces.
“The decline was mostly on account of increased excise duty on non-filter cigarettes. Overall, the industry is doing well in India, except for Golden Tobacco, whose production dipped drastically last year because of a change in the tax structure,” J Suresh Babu, chairman of the Tobacco Board, told Financial Chronicle via email.
Among various tobacco varieties, the average price received by tobacco farmers increased from Rs 84.75 in 2008 to Rs 108.27 in 2009 (for Andhra Pradesh). Buoyed by the prices of FCV (flue-cured Virginia) tobacco, farmers are expected to increase tobacco production in the coming years.

Export market
On the export front, the picture seems bullish in spite of the global financial crisis. Accord-ing to Tobacco Board data, exports of tobacco and tobacco products have been showing a rising trend since the past seven years. Exports have risen by about 67 per cent in rupee terms to Rs 3,383 crore in 2008-09 on a year-on-year basis. In dollar terms, exports have increased by a record 47 per cent to 737 million.

Vat impact
As of now, Delhi, Maharashtra and Rajasthan impose a 20 per cent value-added tax on cigarettes, a rise of 7.5 per cent in four years.
Experts say more states may follow suit in their next budgets, which are due in February 2010. Till then, the cigarette industry is keeping its fingers crossed.
“Fortunately for the industry, there has been no change in either the excise structure or excise rates this year. This is good news for the sector, especially as various states have increased Vat on cigarettes. The unchanged excise rate will lead to continued growth for the industry,” says Harpreet Singh, manager, tax and regulatory services (indirect taxes) at consulting firm KPMG.
According to Motilal Oswal Financial Services, the industry will require to raise the maximum retail price (MRP) of cigarettes by 6.3 per cent to neutralise the impact of a 7.5 per cent increase in Vat. Similarly, if the excise duty is to increase by 5 per cent in financial year 2011, the price increase required to neutralise the Vat impact and a 5 per cent excise hike in FY09-11 will be close to 9 per cent.
As of now there is no certainty about the imposition of 20 per cent Vat as it is yet to be approved by state ministers. Also, there is evidence that higher sales tax or Vat has not worked out well in some states. Citing an instance, the brokerage firm says, “Uttar Pradesh had imposed 33 per cent sales tax on cigarettes in FY08, but withdrew it later due to a rise in smuggling.”
The Union budget 2009-2010 has given substantial tax breaks to encourage research & development (R&D) in all manufacturing sectors, with the exception of a small negative list, which includes tobacco. It allowed provisioning of a weighted tax deduction of 150 per cent for companies in a few sectors such as pharma-ceuticals. (Weighted tax deduction benefits companies, as it reduces their taxable income and tax liability).
However, the benefit was extended to all sectors except those in the 11th Schedule — firms producing alcohol, tobacco, cosmetics, toiletries, dental care products and aerated drinks.

Concerns
Going forward, the main challenge that the sector faces is the disparity in Vat rates across states, says KPMG’s Singh. “Some states have peak Vat rates of 20 per cent, whereas some others have lower rates. This results in procurement of tobacco products from states where Vat rates are low. It leads to loss of revenue for the state where Vat is higher. This may lead to artificial shortage of cigarettes, giving rise to a grey market for the product,” he adds.
As it is, the industry is facing the impact of the government’s decision to ban smoking in public places. Also, product promotion through advertisements has been prohibited, which may have some bearing on sales growth. The imposition of pictorial warnings on cigarette packets is likely to bring regulations at par with global standards, but industry observers feel this may not hamper sales, as most people in India still prefer to buy loose cigarettes.
According to Angel Broking, cigarette majors such as ITC generate 70 per cent of revenues from sale of loose cigarettes. Also, the pictorial warning is supposed to occupy 40 per cent of the cigarette pack, which, if taken at the back of the pack, may not harm sales.

Stock performance
The cigarette industry broadly comes under the fast moving consumer goods sector, which is defensive in nature, implying less returns when markets are surging and vice-versa. Year-to-date, stocks of cigarette makers have risen slower than those of aggressive sectors such as realty and banking.
VST Industries, which added 15.91 per cent, was followed by the 34.15 per cent rise in the prominent cigarette scrip, ITC. Other scrips such as Godfrey Phillips soared 52.76 per cent, while Golden Tobacco gained just 7.67 per cent during the same period.

Outlook
The Indian tobacco industry is expected to remain firm. However, the industry’s growth depends on the changes in taxation. It can go up to as high as 15-20 per cent in a year or remain flat.
For instance, the largest cigarette maker, ITC, saw its cigarette division growing 10.2 per cent in the fourth quarter ended March 31, 2009 on the back of better realisation thro-ugh price hikes and improved product mix. Margins of the segment also showed a 310 basis points expansion to 27.4 per cent.
Overall, the company how-ever showed a marginal 1.08 per cent decline in net sales to Rs 3,892 crore against Rs 3,934 crore in the corresponding period a year ago.
This decline was largely attributed to its other diversified businesses.
“Overall, as the economy improves, as more and more money comes in to the rural economy and as economic status improves, people tend to migrate from cheaper forms of tobacco consumption, such as bidis and chewing tobacco, to the more modern forms of tobacco consumption, namely, cigarettes.
Hence, the prospect of growth in cigarette production is good, given the condition that a stable tax structure is maintained in the near future,” said the Tobacco Board.

Share and Enjoy:
  • Digg
  • del.icio.us
  • Facebook
  • Technorati
  • StumbleUpon
  • Google Bookmarks
  • MySpace
  • MyShare
  • RSS
  • Twitter
  • Simpy
  • Sphinn
  • Yahoo! Buzz
  • Blogosphere News
  • Mixx
  • Reddit
  • Propeller
  • MisterWong
  • LinkedIn

No related posts.

Tobacco-Facts ads
discount cigarettes online

Leave a Reply

 

 

 

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

*
To prove you're a person (not a spam script), type the security word shown in the picture. Click on the picture to hear an audio file of the word.
Click to hear an audio file of the anti-spam word