Will Budget 2011 change your smoking habits?

Will the Finance Minister be the final straw in your giving up your smoking habit? The budget is the time of the year when the excise duty rates on how much cigarettes will be taxed is announced. Usually, these taxes are passed on to the end consumer. So, if cigarette prices go up further, will you end up cutting down on smoking, or will you be forced to give up the habit completely?

Let’s first understand what is excise duty. It is a tax levied by the Central Government on all good manufactured in India and that are consumed domestically. Within this category, cigarettes are one obvious item of a domestically manufactured good that is used for personal consumption. Given the volume of cigarette consumption in the country, it’s an easy source of tax revenue that the Government can earn.

Old habits die hard, particularly addictive ones like smoking. So, if the excise rate on cigarettes goes up, you need to evaluate how much is going to pinch your pocket. At one extreme, you can certainly opt to give up smoking completely if your finances are already very tight, and if you have the will power to walk away. Or, as many smokers do, you might downgrade to a cheaper brand, or reduce the numbers of sticks you smoke in a day.

Whatever you choose to do, keep in mind that your decision has financial implications. If you continue smoking in the same quantity even after the excise duty increases, then you are spending more of your discretionary income on a consumption item that literally goes up in smoke. Recognize that this is money that you could be using to save towards your retirement or towards meeting your financial goals.

On the other hand, if you give up smoking then this frees up some money that you can now use to offset the rising costs of other consumables like fruits and vegetables that are at inflationary highs, or use this money towards paying of your existing loans or credit card balances.

If at the start of January you made a resolution to quit smoking, then you might find that the Finance Minister’s actions on budget day might just be the regulatory reinforcement you need to achieve your goal!