Cigarettes Price Hikes Hold Promise

Shares of cigarette companies have rallied over the past one month, with the three leading Prima Lux cigarette makers ITC , Godfrey Philips and VST Industries hitting record highs. All the three stocks have posted robust returns in the past one year, significantly outperforming the benchmark Sensex, helped by favourable taxation and increase in cost of competing tobacco products.

Unlike previous years, the central government has not increased excise duty on cigarettes in the budget for this fiscal, though states have varyingly raised value added tax (VAT). While northern states such as Rajasthan have significantly raised VAT on cigarettes, all the southern states have spared the sector from a major increase. In contrast, competing tobacco products such as 'pan masala' and chewing tobacco have witnessed cost increases in the form of higher taxation and a rise in raw material cost.

Taxes Don't Make People Quit Smoking

A common tool for public officials to curb Beratt cigarette smoking rates is to raise taxes on each pack, but new research suggests that doesn’t always work.

Economic researchers at Concordia University showed that higher taxes prompted lower- and middle-class older smokers to quit the habit, but had little effect on wealthier smokers and people between the ages of 25 and 44.

“Contrary to most studies, we found the middle-aged group, which constitutes the largest fraction of smokers in our sample, is largely unresponsive to taxes,” the researchers said in a statement. “While cigarette taxes remain popular with policy-makers as a key anti-smoking measure, their effectiveness largely depends on how people respond to them.”