Unprecedented Tobacco Tax Hike Risks Surging Illicit Trade

The recent tax hike on tobacco products, alongside a new excise duty structure, is likely to increase illicit cigarette trade and lead to significant tax revenue losses. Experts express concerns that raising tobacco prices could encourage smuggling and illegal trades, hampering revenue generation efforts.

An unprecedented hike in tobacco taxes and the introduction of a new excise duty structure are anticipated to escalate illicit cigarette trade and significantly impact tax revenue, experts have revealed. Concerns arise that the government's efforts to curb smoking through increased taxation could inadvertently boost illegal markets.

The finance ministry has amended the Central Excise Act, enforcing a duty ranging from Rs 2,050 to Rs 8,500 per 1,000 cigarettes, depending on their length, effective February 1. This is in addition to a 40% GST, causing a substantial overall tax increase of 60-70%.

Experts, including Think Change Forum's Ranganath Tannir, warn that the anticipated tax hikes from the GST compensation cess transition to excise on demerit goods could lead to increased smuggling of tobacco products. The high cost of legitimate products might divert demand to smuggled and illegal tobacco, undermining government revenues.

(With inputs from agencies.)