Illegal cigarettes cost govt `7k cr in lost taxes

BURNING A HOLE Tax-evaded products now account for as much as a fifth of the tobacco industry in the country

NEW DELHI: High incidence of tax evasion by illegal cigarette manufacturers are resulting in an estimated revenue loss of `7,000 crore, with tax-evaded cigarettes now accounting for as much as a fifth of the tobacco industry in India.

Legal cigarettes are now just 12% of the total tobacco consumption in India, and the balance 88% of consumption is in the traditional tobacco forms which are largely produced in the unorganised sector and as illegal cigarettes.

Experts have called for measures to widen the tax base to reduce evasion, and a clampdown on illegal tobacco sale and production.

“Widening the tax base will not only help the government realise huge revenue potential which remains untapped but would also help in arresting the unabated growth of illegal cigarettes and be in consonance with the stated objectives of tobacco control policies of the government,” Legal cigarettes are now just 12% of the total tobacco consumption in India

Rest is in the traditional tobacco forms which are largely produced in the unorganised sector

The unorganised sector pays no tax as products are sold unpackaged, or due to tax exemptions/evasion

said Tobacco Institute of India (TII) director Syed Mahmood Ahmad.

Ahmad said that as a consequence of growing tax-evasion incidence, there has been a double-digit drop in legal cigarette volumes in the July-December 2014 period as against the yearago period.

Excise duty on cigarettes was raised to 72% from 11% in the last budget. The unorganised sector pays no tax either due to the fact that such products are sold in the unpackaged form by small traders, or due to tax exemptions or evasion.

Illegal cigarettes are readily available at marketplaces, paan shops and hawkers’ stalls, and sellers prefer to stock these brands as their low prices ensure higher trade margins, Ahmad said.

He added that manufacturers and distributors of illegal cigarettes tend to be members of organised criminal syndicates. Internationally, it has been reported that illegal profits from cigarette smuggling have been used to fund criminal activities.