Cigarette smokers pay more than MRP

The statutory warning on the box says 'Smoking kills; tobacco causes cancer'. But it is now turning detrimental for your wealth, too, as cigarette prices have increased 9-12 per cent in the past week.

For instance, a pack of 20 Classic branded cigarettes (from ITC) now costs Rs 120. The increase in this case has been nine per cent or Rs 10 per packet.

Similarly, retailers are selling a 10-stick pack of Navy Cut cigarettes (also from ITC) for Rs 48-50 instead of Rs 44. However, the maximum retail prices printed on these packets have not changed so far as cigarette makers are yet to formally announce a price rise.

"The stockists have already increased the price. We have no option but to charge a higher price," said a retailer.

Industry players said the rise in prices is in anticipation of higher ad valorem duty on cigarettes with a length of over 65 millimetre (mm). Finance Minister Pranab Mukherjee in his Budget speech on March 16, had proposed introduction of an ad valorem duty of 10 per cent on these cigarettes.

While cigarette makers may not have formally raised the prices yet, they are believed to have indicated the rate of increase to stockists. Hence, cigarette prices have surged already. Analysts said this gave the wholesalers an opportunity to gain more on existing stocks that were purchased at old prices.

An ITC spokesperson  said the company does not comment on its future pricing strategies. ITC manufactures three out of every four cigarettes sold in India.

Most of the retailers said the price rise has been across all segments of cigarettes, a claim that could not be immediately verified by Business Standard independently.

In India, currently, cigarettes of 65 mm, 73 mm, 83 or 84 mm, 93 mm and 100 mm length are available.

According to industry analysts, due to the ad valorem duty, cigarette makers may consider reviving the below 65 mm segment where the tax burden has not increased.

An ad valorem duty, which was abolished in 1987, is based on the sale value of the product. Market experts argue it does not allow a uniform tax structure. In a specific duty structure, on the other hand, the tax is imposed on the product regardless of its sale price.