The proposed 35% GST slab on high-tax products like tobacco and aerated drinks has sparked concerns about its impact on India’s economy, employment, and tobacco control efforts. Experts warn that such high taxation could fuel the illicit trade of these products, undermining the government’s revenue and health objectives.
High taxes on cigarettes are expected to push consumers toward cheaper, illicit alternatives, further expanding the smuggled market. Although the legal cigarette industry accounts for only 10% of overall tobacco consumption, it contributes 80% of tobacco tax revenue. This critical segment is increasingly under pressure from steep tax hikes and the growing presence of illegal trade.
Impact of Aggressive Taxation
The excise rates on cigarettes have seen a compounded annual growth rate (CAGR) of 15.7% between 2012 and 2017, with additional hikes of 20% in 2017, 13% in 2020, and 16% in 2023. As a result, legal cigarettes have become unaffordable for many consumers, leading to a surge in the demand for smuggled products.
India now ranks as the fourth-largest market for illicit cigarettes, costing the government an estimated Rs. 21,000 crore annually. The overall illegal tobacco market is valued at over Rs. 30,000 crore, according to recent studies by Euromonitor International and Alvarez & Marsal.
Impact on Farmers and Employment
The rise in smuggled cigarettes has also adversely affected Indian tobacco farmers, with reduced demand for locally grown tobacco leading to job losses and declining incomes. Between 2013 and 2023, tobacco production declines resulted in the loss of 238 million man-days of employment.
Despite tobacco’s significant contributions—Rs. 72,000 crore in tax revenue (2022-23) and Rs. 12,000 crore
1.jpg)
Comment List