In a media release issued on January 1, the industry body said the hike runs contrary to repeated government assurances that the transition of taxes would be revenue neutral. It cautioned that such a steep increase would impose severe hardship on millions of farmers, MSMEs, retailers and local value chains linked to the sector, while simultaneously strengthening illicit trade.
Highlighting the scale of the problem, the institute said that for every three legal cigarettes sold in the country, one smuggled or illicit cigarette already enters the market. According to the body, higher taxes would further fuel illegal activity, depriving the national exchequer of revenue and encouraging anti-social networks.
Citing a study covering multiple countries over several years, the institute noted that once illicit trade becomes entrenched, it is difficult to reverse, and enforcement alone cannot address the issue without considering taxation and affordability. It added that legal cigarettes account for just 10% of total tobacco consumption, yet contribute 80% of tobacco tax revenue, underlining the already high tax burden. WHO data, it said, places India among countries with the highest cigarette taxes relative to per capita GDP.
Referring to global experience, the institute pointed to Australia, where high taxes and strict regulation have reportedly led to a booming black market. The body urged the government to re-examine the calculations behind the duty increase and reconsider the move, warning of a crippling impact on the entire value chain and a boost to illicit trade.
