Taxation policy key to illegal trade in India

India’s tobacco manufacturers are urging the government to adopt new policy initiatives aimed at reducing the illegal sale in cigarettes, according to a story by Writankar Mukherjee for the Economic Times.

They feel that current efforts directed at surveillance and the imposition of harsher penalties cannot curb the trade.

Syed Mahmood Ahmad, the director of the Tobacco Institute of India, which represents tobacco manufacturers, said that in its representations the Institute had emphasized that, given the huge and compelling threat posed by the illegal cigarette trade in India, there was an urgent need for the government to have tobacco regulation and taxation regimes that were not counter-productive; that did not promote the illegal trade in tax-evaded cigarettes or the sale of low-quality cheaper forms of tobacco.

The domestic cigarette industry is said to be under huge pressure due to successive increases in cigarette taxation.

Sales volume has declined by as much as 15 percent during the past two quarters, with the prices of ‘affordable’ sub-65 mm length cigarettes having gone from Rs2 to Rs3-4 per piece, and the prices of regular, long and king-size cigarettes having gone up by about 13-15 percent this year.

As a result, some consumers have shifted to foreign, tax-evaded brands, mainly those from China and countries of Southeast Asia, which are sold at Rs1 per piece.

Some tobacco manufacturers are said now to be focusing more on the mid-to-premium segment and launching variants to protect their margins.

A recent report by UBS Securities India said that while the cigarette volume decline would continue as consumption dropped in the price-sensitive segments, the king-size segment remained the most promising.