Tobacco Board Appeals to Finance Minister Nirmala Sitharaman to Reconsider Tax Increase
NEW DELHI: The Tobacco Board has raised alarms over the significant rise in excise duties on cigarettes, urging Finance Minister Nirmala Sitharaman to reconsider the recent tax hike. Effective from February 1, the increase has led to a staggering price surge of up to 60% in real terms, adversely affecting farmers and workers in the tobacco industry. The board warns that this steep tax could fuel the illicit cigarette trade, posing serious economic and public health risks.
Impact on Farmers and Workers
In a letter dated February 10, Tobacco Board Chairman Yashwanth Kumar Chidipothu expressed the urgent need for intervention, highlighting the distress faced by Flue-Cured Virginia (FCV) tobacco farmers. He noted that many farmers have voiced their concerns regarding the tax increase, leading to protests and appeals to their local Members of Parliament. The chairman emphasized that the high tax rates create incentives for smuggling, particularly when enforcement capabilities are limited. He pointed out that weak border controls and fragmented oversight allow illicit operators to exploit policy gaps, which can lead to organized crime and money laundering.
Chidipothu further explained that the consequences of the tax hike extend beyond immediate revenue loss. He cited global evidence indicating that billions in excise and tax revenues are diverted annually to the illicit economy, which in turn reduces funds available for essential public services. As legitimate manufacturers struggle with shrinking market shares and potential job losses, consumers are increasingly exposed to unregulated products that bypass health regulations.
Risks of Illicit Trade
The Tobacco Board Chairman warned that the rise in excise duties could severely depress farmer incomes. The legal cigarette industry, which is the primary domestic buyer of FCV tobacco, is expected to significantly reduce its purchases, leaving farmers unable to cover even their basic cultivation costs, estimated at around Rs 200 per kilogram. Chidipothu highlighted the widespread concern among farmers that market prices could collapse, pushing them into severe and potentially irreversible debt. He recalled a previous instance in 2014 when a 22% tax increase resulted in a price drop of Rs 20 to 30 per kilogram.
Addressing the Illicit Market
To combat the growing illicit cigarette trade, Chidipothu stressed the need for a balanced and coordinated policy approach. This includes strengthening enforcement measures, implementing effective tracking and tracing systems, and fostering coherent regulations. Enhanced international cooperation is also essential to tackle this issue effectively. The chairman reiterated that the unprecedented excise duty increase has created significant distress across the tobacco value chain, impacting millions who rely on this sector for their livelihoods.
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