Excise hike on gutka may apply only to Meghalaya, Lakshadweep

The government’s decision to hike specific excise duty on gutka and pan masala can apply only to one State (Meghalaya) and one Union Territory (Lakshadweep).

Currently, all other States and Union Territories have banned the sale of gutka and pan masala (containing tobacco or nicotine).

While presenting the budget on July 10, Union Finance Minister Arun Jaitley said he was proposing to increase the specific excise duty on several tobacco products, including gutka and pan masala, in order to raise money.

“…I also need to mobilise resources. Accordingly, I propose to increase the specific excise duty on various tobacco products, including gutka and pan masala,” he said in his Budget speech.

The specific excise duty increase for gutka and chewing tobacco would be from 60 to 70 per cent, and from 12 to 16 per cent in the case of pan masala, he said.

However, the hike will have limited impact on revenue generation.

This is because the sale of any food product that contains tobacco or nicotine as ingredients is prohibited under the Food Safety and Standards (Prohibition and Restrictions on Sales) Regulations, 2011 (issued under the Food Safety and Standards Act, 2006).

As a result, starting from 2012, States and Union Territories began banning the manufacture, storage or sale of food products such as gutka and pan masala.

Both items are available despite the ban, and manufacturers have found new ways to circumvent it. As there is no restriction on chewing tobacco, manufacturers do not premix pan masala or gutka with tobacco.

“Instead, they sell pan masala/gutka and tobacco in separate pouches and the customer mixes them before consuming it,” said Dr. Srinath Reddy, president of the Delhi-based Public Health Foundation of India .

The manufacture of gutka for export is not banned, but even in such cases, the increase in excise duty is unlikely to generate revenue.

According to a Central Board of Excise and Customs spokesperson, just as the existing excise duty gets neutralised — either as drawback or other means, whichever applies to gutka exports — so will be this proposed hike.

Published in The Hindu on July 17, 2014