Beedi biz booming

Monday, 7 July 2014 00:00 - - {{hitsCtrl.values.hits}}

Insignificant taxation and regulation make beedi a cheaper alternative
Industry estimates beedi market to have grown to over 3 billion sticks worth Rs. 4.6 b in five years
Currently beedi commands 42% tobacco market share in volume but taxation is less than 1%
Beedi industry growing rapidly whilst CTC products which paid Rs. 76.5 b in taxes in 2013, see volume dip
Industry analysts warn future tax revenue from CTC under threat unless beedi industry is regulated

Whilst the anti-tobacco lobby is largely preoccupied with the sole multinational-linked producer, the beedi business is booming sans any serious regulation and taxation.

Data obtained by the Daily FT suggests that the beedi industry has made a comeback and is puffing its way to faster growth, a phenomenon which industry analysts link to it being a cheaper option thanks to minimal taxation and regulation. The boom in the beedi industry appears to be off the radar of both tax and health authorities because of the greater focus on Ceylon Tobacco Company Plc (CTC), with anti smoking lobbies demanding more serious graphical warning. As per data, the beedi market is estimated to have doubled to over four billion sticks by end 2013 from just two billion sticks in 2008. In 2011 the beedi industry had its peak of 3.47 billion sticks, but slipped to 2.8 billion sticks in 2012. The rebound in 2013 is being maintained well on to 2014 as well. As against the boom in beedi, the formal and highly regulated and taxed CTC sales have been on the decline to slightly over four billion sticks in 2013 from 4.5 billion sticks in 2011 and 4.4 billion sticks in 2008. High taxation on legit products as well as other economic factors have forced smokers to beedi, though the latter is more harmful. The incidence of tax on legitimate pack of cigarette is around 60 to 80% whilst on a bundle of beedi it is as low as 8 to 10%. This explains why the price of CTC’s popular brand Gold Leaf is Rs. 28 today, up 100% from the 2008 price of Rs. 14, whereas beedi in the market is around Rs. 2 per stick as opposed to Rs. 1.50 in 2008. Whilst beedi holds a high 42% share of the market in terms of volume and Rs. 4.6 billion in revenue, it contributes only an insignificant less than 1% of total taxes to the Government. CTC, which is the largest taxpayer, in 2013 paid Rs. 76.5 billion in taxes to the Government. Its contribution has increased by 70% in comparison to Rs. 45.6 billion paid in 2008. Despite enjoying an unprecedented and growing share of 42% in the tobacco market, the beedi industry also enjoys low excise duty and regulations. Industry analysts warned that unless the beedi industry is properly regulated and taxed, future tax revenue from legitimate CTC sales would be under threat. CTC on its part has been maintaining that the legitimate tobacco industry generates around Rs. 100 billion income (1.3% of GDP) both via direct taxes and levies as well as through its tobacco out-grower system and retail trade. Industry research shows that there are around 800 importers and manufacturers within the beedi industry. All importers, manufacturers and stock keepers of beedi tobacco are required to register with the Excise Department although the industry is uncertain about the legislation in terms of whether it is effective and active. The only visible form of taxation or income to the Government via the beedi industry is from the imposition of import tax applied on tendu leaf, which is used to wrap the tobacco. The present tax on tendu leaf is Rs. 250 per kilo and the industry estimates the total collection to be around Rs. 400 million. Overall excise and taxes from the beedi industry is estimated at Rs. 700 million. Though theoretically the beedi manufacturing industry is required to pay VAT and Nation Building Levy, there is no industry data for confirmation.