Excise Duty Hike: Cigarette Industry Raises Concerns Over Revenue Neutrality

The proposed excise duty hike on cigarettes, effective February, is deemed revenue neutral by the Tobacco Institute of India, which warns it may boost illicit trade. The industry calls for a review, highlighting potential hardships for farmers and businesses, and notes the contrast with global public health policies.

The recent proposal to hike excise duty on cigarettes, effective from February 1, has been labeled as 'revenue neutral' by the Tobacco Institute of India (TII). This move is expected to amplify illegal and illicit trade, according to the industry's advocacy group, TII, which represents major cigarette manufacturers including ITC and Godfrey Phillips India.

Describing the increase as unprecedented, TII expressed its shock and appealed to the government to reconsider the decision. The institute argues that the hike could hurt millions of farmers, MSMEs, and other local stakeholders dependent on the tobacco industry, while boosting illicit activities and harming genuine businesses.

The current tax framework includes a 28% GST plus an additional compensation cess, unchanged since GST's 2017 rollout. Global health guidelines generally recommend regular tax increases to curb smoking, unlike the static levels in India. TII highlights that despite forming just 10% of total consumption, legal cigarettes contribute significantly to tobacco tax revenues.

(With inputs from agencies.)