The value of illegal cigarettes seized in the first 11 months of FY21 has spiked to Rs 1,772 crore from just Rs 187 crore in FY20, according to figures made available by the Central Board of Indirect taxes and Customs (CBIC). This includes seizures from both smugglings across borders and domestic tax evasion.
The government has, over the past two years, cracked down on unauthorised cigarette brands, which are mostly smuggled in from China, Malaysia and Dubai. The CBIC and the Directorate General of Revenue Intelligence (DGRI) have been tasked with keeping a constant vigil on the illicit import and smuggling of cigarettes.
Kicking butt
Sources say the latest figures are the result of a renewed push by the field formations of both bodies to stem the inflow of illegal cigarettes through new operating procedures. Also, search operations became more efficient during the pandemic as the volume of inbound cargo dropped, they added.
However, officials blame the higher prices of legal cigarettes for the spurt in seizures. “Quality tobacco on a par with international standards is available in India at competitive prices, but with more taxation over the past two years, retail prices have gone up and smugglers have taken advantage of this to flood the market with spurious alternatives,” a senior official said.
Ironically, the legal import of cigarettes, cigars, cheroots and tobacco substitutes fell to Rs 145 crore in 2019-20 from Rs 172 crore in the previous year. Imports stood at Rs 79 crore in the April-December period of the current financial year, according to official statistics.
Rising prices
Cigarettes, being sin goods, attract the highest GST rate of 28 percent. In addition, they are also subject to GST Compensation Cess, National Calamity Contingent Duty (NCCD) and Basic Excise Duty (BED). While the Union Budget for 2021-22 skipped raising any of the taxes on tobacco products, the previous one had raised the NCCD on cigarettes to Rs 200 per thousand sticks (from Rs 90 earlier) in the shortest-length segment and Rs 735 per thousand sticks (earlier Rs 235) in the longest segment.
According to the Tobacco Institute of India, India’s situation is unique, with only 9 percent of total tobacco consumption in the form of legal cigarettes. The remaining 91 percent is in the form of illegal cigarettes and 29 other tax-inefficient tobacco products such as bidis, chewing tobacco and snuff, among others. This is unlike the rest of the world, where tobacco consumption is synonymous with cigarettes, which account for as much as 90 percent of total consumption.
Nearly 26.7 crore Indians (aged 15 years and above), who make up 29 percent of the adult population, are tobacco users, according to the Global Adult Tobacco Survey India, 2016-17, by the World Health Organization. The WHO also estimates that tobacco consumption kills more than 1 million people annually in India and is responsible for almost 10 percent of all deaths.
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