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Cigarette VAT will burn ITC badly, warns Deveshwar
Indian Express - 23 Mar 2007

ITC Ltd, the country’s biggest tobacco firm, would face a “huge burden” due to the proposed levy of value added tax (VAT) on cigarettes in some states, company chairman Y C Deveshwar said today. “ITC is a very strong company. Barring the huge burden that’s coming through VAT because of change of structure, I am proud of ITC’s strong moorings... its vitality,” Deveshwar told reporters here while speaking about the broad outlook for the company in 2007-08.

Asked if ITC’s growth momentum would continue in the next financial year, he replied, “I hope so. That’s my job.” Deveshwar criticised the VAT on cigarrettes, saying the step went against the principle of VAT itself, in that it’s intended to avoid “cascading”.

“But in the case of cigarettes, because it’s so heavily taxed... if you apply it (VAT) on that, it’s a tax on tax. Why?” he asked. “Ultimately, there is the GST (goods and services tax)”. The West Bengal government last week proposed in the state budget a 12.5 per cent VAT on cigarrettes, effective from April 1 this year. Besides Maharashtra and Bihar too have proposed levying VAT on the product.

Parliament had recently passed a legislation that enabled states to levy VAT on tobacco products. The Union Budget had also hiked the excise on cigarettes by 5 per cent. On possible “volume squeeze” following the higher taxes on cigarettes, Deveshwar said that the issue is being debated within the company.

Deveshwar, who was speaking to the media on the sidelines of a Confederation of Indian Industry (CII)-organised conference, said that ITC is scouting for acquisitions. “We need to find things good for acquisitions. We are looking around (for acquisitions)”, he said.

But Deveshwar said that acquisition is one business where the global track record has shown that 60 per cent of all acquisitions and mergers have not ended up creating value. “So, you have to be savvy. We are careful”.