Seize the unique opportunity that GST presents to address the growing threat of Illegal Cigarette Trade: TII Appeals to Government

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​​Hyderabad: Citing the serious challenges faced by the Legal Cigarette Industry and its stakeholders due to the rapidly growing illegal cigarette trade in the country, the Tobacco Institute of India today appealed to the Government to take measurers to control the menace.

TII has also highlighted the sharp spurt in the incidence of reported seizures of smuggled cigarettes by the Enforcement agencies in the country in the past few months. Smuggled cigarettes worth crores of rupees have been seized by various enforcement agencies as per media reports.

While there is an increase in vigilance by the enforcement agencies, it must be noted that the seizures are only the tip of the iceberg of a much larger and threatening operation in illegal trade in the country. After all, for every seized consignment there are a large number of consignments that escape surveillance and find their way into the market. In fact, the FICCI Study, ‘Invisible Enemy – A Threat to National Interests’, estimates that the ratio of seizures to smuggled cigarettes ranges from a mere 0.3% in 2013 to 1.8% in 2015.

Mr. Syed Mahmood Ahmad, Director, Tobacco Institute of India, said, “While the illegal cigarette trade in India is growing rapidly, the Legal Cigarette Industry continues to decline as a consequence of successive years of high excise duty rate increases, cumulatively going up by 125% since 2012/13. During the last 5 years the legal cigarette Industry has seen more than 25% shrinkage in cigarette volumes.”

“Excessive taxation leading to the huge arbitrage opportunity has provided an enormous incentive to smuggling syndicates and undermined the legal cigarette industry and Government’s Tobacco Control Policy and revenue collection,” he added.

According to a recent FICCI Study, ‘Invisible Enemy – A Threat to National Interests’, high taxation on cigarettes is the primary driver of illicit trade in the country making legal cigarettes unaffordable to a large section of consumers and pushing business to the underground, clandestine trade in illegal cigarettes.

This Study notes that Cigarettes are among the top 5 smuggled goods in the country with far reaching impact on various stakeholders including Government, domestic industry and society at large.

The enforcement alone cannot fully address the menace of the large and growing illegal cigarette trade in the country and that systemic policy changes in high taxation and excessive regulation are required to adequately deal with the size of the problem.

Illegal trade in cigarettes in the last five years has seen a huge surge. According to Euromonitor International, India is the fastest growing and the 4th largest illegal cigarette market in the world totaling to 23.9 billion sticks in 2015. In fact, a FICCI Report estimates the overall market for illegal cigarettes in India at a significant 20.2% of the Cigarette Industry, resulting in a huge revenue loss of Rs.9,139 crores to the national exchequer.

Illegal cigarette trade not only causes huge loss of revenue to Government but it also seriously undermines the social objectives of tobacco control as it makes available tobacco products which do not adhere to regulations and also products that are of suspect quality, manufactured under unhygienic conditions.

Moreover, since contraband products do not use locally grown tobaccos, illegal trade affects demand for domestic tobaccos thereby, impacting the earnings and livelihood of tobacco farmers in the country. In fact, since 2013-14, the annual earnings of FCV tobacco farmers have shrunk by more than Rs.1,500 crores due to fall in demand for tobaccos grown by them used in the manufacture of domestic legal cigarettes.

The illegal trade in cigarettes in India, like the rest of the world, is controlled by criminal and terrorist organizations. Internationally, it has been determined, for example recently by the US Department of Homeland Security, that profits from cigarette smuggling have been used to fund criminal and terrorist activities posing a huge threat to National Security.

It is therefore, critical to contain the threat that the growing illegal cigarette trade poses to the legal cigarette industry and its stakeholders. As an Industry Body, representing tobacco farmers, cigarette manufacturers and ancillaries, the Tobacco Institute of India appeals to the Government to seize the unique opportunity that GST offers to address the high tax arbitrage available with cigarette smuggling syndicates and thereby, provide relief to distressed tobacco farmers, the legal cigarette industry and also inject buoyancy in revenue collection from this sector.