Excise Hike Threatens Cigarette Industry Stability

A recent increase in cigarette excise duty could boost illicit trade and challenge tax collection, warns a report. The changes threaten to impact employment in agriculture, specifically FCV tobacco firms, and accelerate informal tobacco consumption, posing significant socioeconomic and revenue risks.

The recent increase in excise duty on cigarettes, effective from February, has sparked concerns over a potential rise in illicit cigarette trade, as stated in a report titled 'New Tax Regime on Cigarettes and Its Impact'. The move is set to affect the entire cigarette value chain significantly and exacerbate existing challenges faced by the industry.

Artha Arbitrage Consulting notes that the current tax increase could not only boost the illicit trade but also introduce serious socioeconomic impacts. The additional health cess, combined with the high GST rate, is pushing cigarette prices up by Rs 22 to 25 per pack, thus straining the market further.

This tax hike is forecasted to result in a 20% drop in FCV crop demand and a loss of 2.6 million man-days of employment, severely impacting tobacco cultivators and associated labor. The report suggests that this could lead to a 39% increase in demand for illegal tobacco products, a critical threat to legitimate growers and socioeconomic stability.

(With inputs from agencies.)