High tax on cigarettes making contraband market flourish

High taxation on cigarettes is not only fuelling consumption of cheaper tobacco products like bidis, chewing khaini, gutka, in India but also leading to the growth of contraband cigarettes market causing loss of over Rs 3,000 crore annually to the government.

Therefore, the Tobacco Institute of India (TII) has urged the government to re-look at its taxation policy towards cigarettes. As a result, leading cigarette manufacturers like ITC, Godfrey Phillips and others are set to lobby for lowering of excise duty and other taxes on cigarettes, sources said.

Citing a recent survey released by Global Adult Tobacco Survey and published by the health ministry, TII said only 5.7% adults consume cigarettes while a bulk consume cheaper tobacco products. TII is a representative body of tobacco farmers, exporters, manufacturers and trade and ancillary industries associated with the Rs 22,000 crore cigarette industry in the country.

According to TII, the contraband trade in cigarettes consists of the international brands that are smuggled into India and the duty evaded cigarettes manufactured domestically by small and unscrupulous manufacturers. ?With steep duty increases over the last few years this segment has grown exponentially,? TII said.

According to TII, cigarettes account for only 15% of the country?s total tobacco consumption while it generates 70% of the excise revenue from tobacco.

?The average excise duty rate on cigarettes is Rs 1,100 per 1,000 cigarettes whereas it is only Rs 9 per 1,000 bidis. This is forcing consumers to shift to cheaper and alternate forms of tobacco consumption.?

?As a result, not only is overall tobacco consumption increasing as the average price of tobacco products gets lowered, but also revenue collections are being sub-optimised,? Udayan Lall, director, Tobacco Institute of India said.

According to the tobacco industry, even the per capita consumption of cigarettes in India is among the lowest in the world. According to one report, Indians consumes around 99 cigarettes per adult, per year whereas it is much higher for Pakistan (390), Nepal (270), Sri Lanka (200), and Bangladesh (170). Leading the cigarette smoking nations are countries like Greece (3,000), Russia (2,300), Japan (2000), China (1,700), and the US (1,200) among others.

TII said as a percentage of per capita GDP, cigarette taxes in India, of the most popular price category, are amongst the highest in the world. ?This makes cigarettes unaffordable in India, as compared to other countries. And that is the reason that despite its meagre share of consumption (15%), cigarettes contribute as much as 70% of the excise revenue from tobacco,? TII said.