Excessive regulation and high taxes stifle legal tobacco trade: former CBIC chief

Tobacco products in India have long faced the brunt of high taxes and unreasonable regulatory measures despite being one of the biggest revenue generators at ₹53,750 crore per annum. India is the second largest tobacco producer in the world and supports 45.7 million people.

PC Jha, former chairman of the Central Excise and Customs Board and adviser to the FICCI Committee Against Smuggling and Counterfeiting Activities Destroying the Economy (Cascade) told Business Line that only eight percent of total tobacco is consumed under form of legal cigarettes and the rest is consumed through 29 tax-evading products such as bidis, chewing tobacco, khaini and illegal cigarettes. In contrast, legal cigarettes worldwide account for 90% of total tobacco consumption. Therefore, he said the country’s tobacco control policies and regulations should be tailored to Indian conditions and not based on a “one size fits all” approach as advocated by the WHO tobacco control programme.

Illegal cigarettes alone represent a revenue loss of around ₹15,000 crore per year for the government, according to market estimates.

Loss of income

According to a World Health Organization report last year, the affordability as a percentage of GDP per capita needed to buy 2,000 cigarettes in India is 13.78%, compared to 1.16% in the United States. , 1.22% in Japan, 1.10% in China and 4% in Pakistan. Thus, making legal cigarettes in India the least affordable and increasing the circulation of illicit cigarettes evading taxes, he said.

According to the Euromonitor International report, India is now the fourth largest market for illegal cigarettes in the world with an eightfold increase in illicit cigarette seizures in 2020 compared to the previous year, indicating that India continues to be a target for tobacco smugglers. Furthermore, according to DRI’s “India Smuggling Report” released in 2021, the seizure of illegal cigarettes increased by nearly 20% in FY20-21, making it one of the the most lucrative for smugglers in recent times.

According to Jha, health warnings on cigarette packs in India cover more than 85% of the pack surface. The United States, China and Japan, which collectively account for 50% of global cigarette consumption, have opted for text warnings. Extreme regulations and taxation of any legal proceeds even of sins promote illicit trade. The government’s goal of increasing cigarette taxes stems primarily from a public health perspective while increasing its treasury.

However, due to the current short-sighted approach, both lofty goals are defeated. There is an immediate need to deepen all related aspects while making tax decision about this item, Jha said.

Published on

January 15, 2022

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