High taxation leading to growth of illegal cigarettes, cheaper forms of tobacco products

High and discriminatory taxation on cigarettes has led to unabated growth of illegal cigarettes and cheaper forms of tobacco products, an institute has said.

The Tobacco Institute of India said that as a result of discriminatory taxation, the share of legal cigarette industry in total tobacco consumption in the country has declined to 11% at present, from 21% in 1981-82.

However, overall tobacco consumption in the country has increased by 38% during this period, it said.

Over the last three-and-a-half-years, the incidence of Central Excise Duty and State VAT on cigarettes, at a per unit level, has gone up cumulatively by 98% and 124% respectively, the institute said.

The high taxation is exerting severe pressure on the legal cigarette industry even as illegal cigarettes grows unabated and the overall tobacco consumption continues to shift to cheaper non-cigarette tobacco forms, it added.

The institute said during the period 2008-09 and 2014-15, whilst inflation (CPI) has increased by 73% but the incidence of tax per 1000 cigarettes has gone up by as much 126%.

“This confirms that the growth in cigarette taxation is well ahead of inflation, and to that extent, affordability of cigarettes in India has only reduced further,” the institute claimed.