INDIA. Travel retailers in India and overseas are weighing up the serious repercussions of the Indian government’s shock halving of the inbound duty free tobacco allowance on Friday to 100 sticks, 25 cigars or 125 grams of tobacco.
The decision has already been ratified via the Baggage (Amendent) Rules 2014 by the Central Board of Excise & Customs.
The change is linked to Union Finance Minister Arun Jaitley’s proposed ‘sin tax’, announced in his budget last Thursday, which increases excise duty on cigarettes by varying levels, ranging from 11% to 72%. There has been no consultation with the travel retail industry over the duty free allowance change, sources say.
The duty free change will seriously hit business at any airport with a significant India-bound passenger base as well as (to a lesser degree) India’s key Arrivals duty free business (the latter is overwhelmingly dominated by liquor sales). Two senior sources involved with the Indian duty free business told The Moodie Report that they were worried about the precedent any sin tax-related cuts could create for other categories (the Philippines is the definitive example of a duty free market that has been hit in the past by sin tax surcharges on supposedly ‘duty free’ items such as liquor and tobacco).
Meanwhile, DFS Chief Operating Officer Michael Schriver, whose company operates the Mumbai Airport duty free stores in partnership with Flemingo, told The Moodie Report: “We are always concerned about legislation that further limits or restricts purchases in duty free. In this particular case in Mumbai Arrival tobacco represents less then 2% of our Arrivals business and is therefore not overly material to our business.”
The reason for such a small percentage is that DFS/Flemingo only sell Philip Morris products. Other brands do not comply with stringent health warning label regulations and were removed from Arrivals duty free sales in 2012.
Offshore though, the impact is likely to be considerably more damaging. A senior spokesman for Abu Dhabi Duty Free commented: “Any changes in tobacco legislation reducing allowances always has significant impact on sales to those countries. The Indian market is very important to us and we foresee a significant reduction in sales as a result of this new legislation.”
With duty free cigarettes sold in cartons of 200 in India, the legislative changes have led to an immediately serious impact on Indian Arrivals stores as 100-stick cartons are not available, according to sources who asked to remain anonymous.
Asia Pacific Travel Retail Association (APTRA) President Jaya Singh said: “The board and members of APTRA join airport retailers and suppliers in expressing their complete and resolute disagreement with the decision.
“Although the move has yet to be voted on by the Indian Parliament – and as such is not yet law – its potential repercussions on arrivals duty free in the country and on duty free tobacco sales to India-bound passengers are causing consternation across the industry.
“Not only was this move undertaken without due consultation with retailers and suppliers, it also demonstrates the complete disregard of the Indian authorities for the broader implications on the local economy.
“APTRA and its partners are redoubling their strenuous efforts to convince the Indian authorities to reverse this decision before it is put to the vote this week and sales to departing passengers will continue at Indian airports as normal.”
Both the severity of the allowance cut and the way it has been introduced with minimal (or in this case no) consultation with industry echo the slashing of the tobacco allowance in both Australia and New Zealand over recent times. The news is another serious blow to the duty free tobacco category and retailers all around the globe serving India-bound flights will be scrambling today to inform their staff of the new allowances (or, if not, they certainly should be).
THE SILVER LINING IN THE CLOUD
There has been no change in the duty free limits on alcohol. However in the only good piece of news for travel retailers to come out of the Budget-related changes, the duty free value allowance has been raised to IR45,000 (US$750) from IR35,000 (US$585) for all passengers aged ten years or above and returning to the country after being away for more than three days. This spells positive news for offshore airport travel retailers serving India-bound passengers who buy gifts for family and friends.
Check back to this story during the day as we’ll bring you news, reaction and analysis from around the globe.
