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 Rs 144,000 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 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.
The report quoted Louise Shelley, a transnational crime expert at
George Mason University, as saying "no one thinks cigarette smuggling is
too serious, so law enforcement doesn’t spend resources to go after
it".
An industry official said cigarette smuggling is considered a low-risk
but high-reward criminal activity. In the absence of harsh punishment or
a lower risk of detection, people resort to importing cigarettes in the country illegally.
"The illicit cigarette trade can pose a serious security threat as
there is evidence, globally, that organised transnational criminal
groups are involved in it and money earned through it is used to fund
serious criminal activities, including terrorism," the report stated.
Smuggled cigarettes were estimated at Rs 7,561 crore in 2013 and Rs 8,946 crore in 2015, an 18.3 per cent jump.
Ficci has also said high taxation alone cannot be responsible for the
growth of the illicit cigarette trade. "This also results from lack of
control on cigarette manufacturing and the movement of cigarettes and
other tobacco products across international borders. Also, it is run by
criminal organisations with sophisticated systems for distributing
smuggled tobacco products. Illicit trade is more common in low-income
countries than high ones," says its report.