Hope on GST to curb cigarette smuggling

The coming national goods and services tax (GST) will, says the cigarette industry, help curb smuggling of items in the segment.

Cigarettes, both duty paid and tax paid, comprise 15 per cent of the entire tobacco market in India, which was estimated at ~1.44 lakh crore in 2015. The Tobacco Institute of India (TII), representing 98 per cent of duty-paying cigarette makers, says the country has become the fastest growing and fourth largest illegal cigarette market in the world, on account of excessive taxation.

“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 per cent since 2012-13. During the past five years, the legal cigarette industry has seen more than 25 per cent shrinkage in volumes,” says Syed Mahmood Ahmad, director at TII. “Excessive taxation leading to the huge arbitrage opportunity has provided an enormous incentive to smuggling syndicates and undermined the legal cigarette industry and the government’s tobacco control policy and revenue collection.,”

The institute and other industry officials feel GST, with a uniform tax policy, will be able to bring price homogenity. And, importantly, due to the stringent procedure needed for tax declarations at each level of the trade, the share of contraband and counterfeit cigarettes will go down. The industry, though, is still to know the applicable tax rate on cigarettes under GST.

A report from business chamber Ficci says the International Consortium of Investigative Journalists has reported that some of the world’s most feared terrorist outfits like Hezbollah, Taliban and Al-Qaeda have been found to be involved in smuggling of cigarettes, as are the Real Irish Republican Army and the Kurdistan Workers’ Party.