Excise duty hike on cigarettes to encourage smuggling: Tobacco industry body

New Delhi, Jan 1 (PTI) The overall impact of the proposed hike in excise duty on cigarettes from February 1 will be "revenue neutral", as it will further boost the "illegal and illicit" trade, industry body Tobacco Institute of India said on Thursday.

Terming it as "unprecedented increase" in duty, TII, a representative body of leading cigarette makers like ITC, Godfrey Phillips India, and VST Industries, along with farmers, exporters and ancillaries of the cigarettes segment of the tobacco industry in India, said it is "shocked and surprised".

Tobacco Institute of India (TII) has requested the government to review the computations behind this extremely severe tax increase and reconsider the enormous hike, given the huge implications.

"Such a massive increase will cause immense hardship and loss to millions of farmers, MSMEs, retailers and local value chains nurtured by the industry, besides providing a huge fillip to the illicit Industry and damaging national enterprises," said TII in a statement.

The industry body further said it is well known that for every three legal cigarettes, one smuggled/illicit cigarette is sold in the country, and this high tax increase will further boost "illegal and illicit activity", depriving the exchequer, besides promoting anti-social activity.

Currently, cigarettes attract 28 per cent GST, plus a compensation cess at a varied rate. Taxes on cigarettes have remained at the same level in the past 7 years since the introduction of GST in July 2017.

The Finance Ministry has notified the excise duty of Rs 2,050 - Rs 8,500 per 1,000 sticks, depending on the length of the cigarette, from February 1. The duty will be over and above the maximum 40 per cent Goods and Services Tax (GST) rate.

This is in contrast to global best practices and public health guidance, which emphasises annual increases in duties to ensure that cigarette prices rise faster than incomes, sources said.

Globally, more than 80 countries revise tobacco taxes annually, many using inflation-indexing or multi-year excise schedules. Prior to the GST roll-out, even in India, excise rates on cigarettes were increased annually, they added.

TII said cigarettes are already a highly taxed product in the country.

"Legal cigarettes constitute only 10 per cent of the total tobacco consumption while contributing 80 per cent of tobacco tax revenue. Cigarette taxes in India as a percentage of per capita GDP are amongst the highest in the World, as per the WHO data," it added.

Australia, which has been at the forefront of tobacco control, with high tax and stringent regulatory measures, has had unintended consequences of an “exploding black market” with large criminalisation of the trade.

"Parliamentarians are now demanding a rollback of taxes to ensure people go back to the legitimate trade. It is important to take cognisance of such global experiences and have a balanced policy," the institute said. PTI KRH CS KRH BAL BAL