New Delhi, Jan 1 (.) The Tobacco Institute of India (TII) has expressed strong concern over the sharp increase in excise duty on cigarettes announced on Wednesday (December 31), saying the move could severely hurt farmers, small businesses and legitimate industry while significantly boosting illicit trade in tobacco products.
In a communique released on Thursday here, TII said it was “shocked and surprised” by what it described as an unprecedented duty hike, especially in light of repeated government assurances in the past that the transition in tax structures would be broadly revenue neutral.
According to the industry body, the scale of the increase goes far beyond expectations and could have far-reaching economic consequences.
TII warned that the higher excise burden would impact millions of people linked to the tobacco value chain, including farmers, MSMEs, retailers and ancillary businesses.
It said the move risks weakening local value chains that have been built over decades, while simultaneously strengthening illegal and illicit cigarette markets.
Highlighting the existing problem of illicit trade, the institute pointed out that for every three legal cigarettes sold in India, one illicit or smuggled cigarette already finds its way into the market. TII cautioned that a steep tax increase would further distort the market in favour of illegal operators, depriving the exchequer of revenue and encouraging anti-social activities.
Citing international research covering 71 countries over a 17-year period, the institute noted that once illicit trade becomes deeply embedded in a market, it is extremely difficult to reverse. The study also underlined that enforcement alone is insufficient to curb illegal trade if taxation and affordability concerns are ignored.
TII said India already has a high incidence of illicit tobacco, and the latest tax hike could significantly worsen the situation. The industry body also emphasised that cigarettes are already among the most heavily taxed products in the country.
Legal cigarettes account for only about 10 per cent of total tobacco consumption but contribute nearly 80 per cent of overall tobacco tax revenues. It added that cigarette taxes in India, measured as a percentage of per capita GDP, rank among the highest globally.
Drawing attention to global experience, TII referred to countries such as Australia, where high taxation and stringent regulations have reportedly led to an expanding black market and increased criminalisation of the tobacco trade. It noted that lawmakers in such markets are now debating tax rollbacks to bring consumers back to legitimate channels.
TII has urged the government to review the calculations behind the latest excise increase and reconsider the magnitude of the hike. According to the institute, the current move could have a debilitating impact on more than four crore people dependent on the tobacco ecosystem, deal a serious blow to legitimate Indian enterprises, and unintentionally promote the growth of illicit trade.
The statement calls for a more balanced policy approach that safeguards revenue and public health objectives without undermining legal industry and livelihoods.
. SAS PRP