Kerala traders ban cigarette sale over VAT dispute

Cigarette sales in Kerala have taken a serious hit as traders statewide began the indefinite suspension of sales of tobacco products, April 16, to press their demand that manufacturers pay all taxes in advance and include them on the maximum retail price (MRP) shown on the packets.

As the ban entered the third day, reports trickled in from across the state that while wholesalers have stopped taking fresh stocks, the retailers were selling cigarettes to exhaust pending stocks.

The protest action was called by the Kerala Vyapari Vyavasayi Ekopana Samiti, the state–level body of traders, which wanted the manufacturers to bear the 12.5 percent Value Added Tax (VAT) levied on cigarette and other tobacco products.

The state government had given an option to manufacturers to have all taxes paid before fixing the MRP, but they had refused to comply with it, Samiti president T. Naseeruddin told reporters in Kozhikode.

According to trading circles, the manufacturers' stand had affected the profit the traders would get from tobacco product sales.

Meanwhile, India's leading cigarette manufacturer, ITC, has gone into a damage control mode in an attempt to appease the disgruntled traders. However, a team of representatives from ITC which met tax commissioner Paul Antony, April 18, in Thiruvananthapuram, has stuck to its grounds saying that it does not approve of having a special price only for Kerala. They informed the government that the traders' call to compound the 12.5 VAT levy with the retail price of the products would bring losses for the tobacco maker.

This apart, if a special price was brought in just for Kerala, there are chances that small time traders would buy cigarettes from neighboring states and sell them in Kerala, they warned.

State finance minister Thomas Isaac was not sympathetic to the reason cited by ITC as he reiterated that the government was not considering any move to withdraw the 12.5 percent VAT on cigarettes. He added that from now on, the maximum retail price would incorporate the VAT levy too on all new packets of cigarettes.

Naseeruddin had earlier said in Kozhikode that the cigarette makers were not adhering to the government directive, which said that the companies should include the tax in the MRP before fixing the price of the products.

"Our demand that the company should pay all the taxes at the first point (before the product reaches the distributors) is only to relieve the wholesalers and retailers from incurring losses," Naseeruddin said.