Cigarette Tax Hike: Illicit Trade Surge, Tax Collection Hit Feared

• A report by Artha Arbitrage Consulting warns that increased cigarette prices due to additional excise duty could boost illicit trade and impact tax collection.
• Additional excise duty on cigarettes and tobacco products, and a health cess on pan masala, came into effect from February 1, leading to a price hike of Rs 22-25 per pack of 10 sticks.
• The new tax is projected to reduce FCV crop offtake by 20% and cause a loss of 2.6 million man-days of employment in farming and related activities.
• Rising prices are expected to increase demand for illegal tobacco products by 39%, pushing total illicit cigarette consumption to over 46 billion sticks.
• The report, in association with FAIFA, highlights that disproportionate taxation on FCV tobacco has already led to contraction in acreage and decline in growers, an imbalance likely to worsen with the latest hike.