India: Illegal Cigarette Trade Impacts Domestic Industry

Source from:  The Hindu 01/15/2016

The recent seizure of foreign-make cigarettes by the Directorate of Revenue Intelligence (DRI) from containers at Krishnapatnam port brings to the fore the problem of contraband goods finding their way into the country, affecting tobacco growers and industry on the one hand and depriving the national and State exchequers of huge revenue on the other.

The DRI seized cigarettes of different brands and flavours worth Rs.13.43 crore smuggled into the country in the guise of bedspread, cosmetics, and paper napkin toiletries.

About 24 billion sticks are estimated to be smuggled into the country annually through sea ports as also the porous land borders with Bangladesh and Nepal, depriving the Union and State governments of revenue in the form central excise and VAT respectively, and affecting the livelihood of 41.5 million people, including farmers, labourers, and workers, according to Indian Tobacco Association (ITA) sources.

According to a study conducted by a global research organisation, Euromonitor International, illegal cigarettes nearly doubled in the last 10 years, making India the fourth largest illegal cigarette market in the world.

A recent study conducted by the Federation of Indian Chamber of Commerce and Industry (FICCI), the overall market for illegal cigarettes (comprising international smuggled and domestically manufactured tax-evaded cigarettes) in India was 20.2 per cent, up from 15.7 per cent in 2010, resulting in a huge revenue loss of Rs.9,139 crore to the national exchequer.

Smuggling of cigarettes also meant reduced off-take of tobacco (about 35 million kg) from farmers by the domestic tobacco industry at a time when the growers struggled to get a remunerative price, triggering a spate of farmer suicides, during last year, pointed out a farmer leader from Vellampalli N. Chimpiriya.

"We have told Union Health Minister J.P. Nadda that non-adherence to regulations like statutory health warning by illegal cigarette traders gives an impression that they are safer alternatives to cigarettes sold legally," said another farmer leader Guru Brahmam from Kanigiri.

The farmers could have marketed tobacco worth Rs.350 crore without any problem had the Centre taken effective steps to check smuggling of foreign-make cigarettes, explained V. Prasad, a farmer leader from Ongole II auction platform.

The excise duty burden on legal cigarettes has almost doubled in the last four years, ITA sources said, adding that the taxation policy aimed at reducing the demand merely shifted it from legal to cheaper illegal cigarettes.

It is high time the policy makers took note of the adverse impact of the illegal cigarette trade on the earnings of the domestic tobacco growers and initiated effective steps to curb the menace, which also aided prevalence of organised criminals' syndicate, they add. Enditem