VAT on cigarettes a huge burden on ITC: Deveshwar

BANGALORE: 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 a few states, company chairman Y C Deveshwar said.

"ITC is a very strong company. Barring the huge burden that's coming through VAT because of change of structure... otherwise ITC...I am proud of its strong moorings..its vitality," Deveshwar told reporters here while talking about the broad outlook for the company in 2007-08.

Asked if ITC's growth momentum would continue in the next financial year, he said: "I hope so. That's my job".

Deveshwar criticised 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 tax on tax. Why," he asked. "Ultimately, there is 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 April one this year. Besides Maharashtra and Bihar have also proposed levying VAT on the product.

The Parliament had recently passed a legislation that enabled states to levy VAT on tobacco products. The Union Budget had also hiked excise on cigarettes by five per cent.

On possible 'volume squeeze' following higher taxes on cigarettes, Deveshwar said the issue is being debated within the company. Deveshwar, who was speaking to the media on the sidelines of a Confederation of Indian Industry-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 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".