Hike in cigarette taxes will increase smuggled trade: FAIFA

Tobacco farmers' body FAIFA on Thursday said the hike in taxes on cigarettes announced in the Budget 2020-21 will only increase the smuggled cigarette trade which, in turn, will affect livelihoods of millions of tobacco growers and farm workers.

The Federation of All India Farmer Associations (FAIFA) said it had also appealed to Finance Minister Nirmala Sithraman to have a "pragmatic approach" on cigarette taxation at a meeting on Wednesday evening.

The hike in national calamity contingent duty (NCCD) on cigarettes proposed in the Budget is a major setback to the FCV tobacco farmers who have been fighting torrential and unseasonal rainfall this year in Andhra Pradesh and Karnataka, FAIFA said in a statement.

"Indiscriminate increase of excise duty on cigarettes will result in reduction in legal cigarette production and this will reduce the tobacco purchases of domestic manufacturers, impacting market prices for farmers thereby putting more pressure on farmer's earnings and causing further stress," it said.

Commenting on the hike in NCCD on cigarettes, FAIFA President Javare Gowda said, "This tax increase will provide a further boost to the smuggled cigarette trade and (lead to) decline in domestic demand, resulting in weak demand in the ensuing auctions."

He further said the hike in NCCD was unexpected as several representations were made to the government to make it aware of the current situation of tobacco farmers and the ground-level realities of the struggles and losses that are being faced by them due to crop damage and also smuggled and illegal cigarette markets.

In the Budget, Sitharaman had announced increasing NCCD on cigarettes, ranging from Rs 200-Rs 735 per thousand sticks, depending upon length of cigarette and on filter and non-filter basis.

It was increased to 60 per cent from 45 per cent on smoking mixtures for pipes and cigarettes, while on other forms of smoking tobacco (other than smoking mixtures for pipes and cigarettes) and forms of chewing tobacco, it was increased to 25 per cent from 10 per cent.

Gowda claimed that due to higher taxation, smuggled, illicit and contraband cigarettes along with WHO regulations, FCV production has come down to 210 million kg in 2019-20 from 325 million kg in 2013-14.

It has resulted in "loss of more than Rs 5,000 crore (cumulative) to the FCV Tobacco Farming community", he added.

In contrast, he said the market for illicit cigarettes is rising and has doubled from a level of 12.5 billion sticks in 2005 to 26.5 billion sticks in 2018 making India the fourth-largest and fastest-growing illegal cigarette market in the world.

"Based on the current tax rates on cigarettes, it is estimated that the government loses Rs 13,000 crore in tax revenues per annum on account of illegal cigarette trade," Gowda claimed.