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Tobacco Farmers Ask Government to Ease Tax Burden on Cigarettes

Chander Mohan
Chander Mohan

The consumption of Flue Cured Virginia (FCV) tobacco has come down due to excessive taxation on cigarettes. This, however, has led to increase in sales of smuggled cigarettes, Javare Gowda, President of Federation of All India Farmer Associations (FAIFA), said. In a memorandum submitted to the Finance Minister, he said that any additional tax burden would put further pressure on the livelihood of tobacco farmers. As Finance Minister Nirmala Sitharaman gets ready to present her maiden Budget, tobacco farmers have appealed to her to have a sympathetic view and ease tax burden on cigarettes.

The legitimate cigarette industry size in India, which was at 110 billion sticks in 2011-12 as per industry estimates, has dropped by 25 per cent to about 83 billion cigarettes in 2016-17. In contrast, the illegal, duty-evaded cigarette segment has grown to about 26 billion cigarettes in 2017, i.e., almost one-fourth of the industry.

To ensure livelihood support for tobacco farmers, FAIFA has appealed to roll back tax increase so that taxes on the sector comes back to pre-GST revenue neutral rates. The federation has also said that the government should have a tax policy that disincentives illicit trade of cigarettes. It has also urged for reinstatement of tobacco export incentives to boost the economy of Indian Flue Cured Virginia (FCV) farmers.

"... we would like to underline that the principle of revenue neutrality has been reiterated time and again by the government in respect of fixation of tax rates in the GST era," Javare Gowda, President, Federation of All India Farmer Associations (FAIFA), said making a case for restoring taxation to pre-GST levels.

The entire legal cigarette value chain is presently reeling under penalising taxation on account of continuous increases in excise duties and compensation cess on cigarettes, which have cumulatively gone up by 202 per cent between 2011/12 and 2017/18 leading to shrinkage of cigarette volumes by more than 25 per cent since 2012/13, FAIFA has said.

Murali Babu, General Secretary of Federation of All India Farmer Associations (FAIFA), said: "We have tried out various alternative crops and burnt our fingers. The chilli crop as an alternate to tobacco has miserably failed during last season. In fact, since 2013-14, the earnings of FCV tobacco farmers have shrunk cumulatively by more than Rs 4,000 crore due to drop in production (refer graph) of tobacco for the manufacture of domestic legal cigarettes. For the first time, 22 FCV farmers committed suicide and many are under huge debt in the states of Andhra Pradesh and Karnataka."

According to FAIFA, a steep increase in excise duty in the recent past has led to growth of smuggling of cigarettes in India due to the high tax arbitrage.

There has been a 32 per cent increase in illegal cigarette trade, increasing from 19.5 billion sticks in 2011 to 25.7 billion sticks in 2017, making India the 4th largest illegal cigarette market in the world (as per Euromonitor International) and further supported by an independent study done by FICCI.

It has resulted in revenue losses of approximately Rs 13,000 crore and is growing annually.

The cigarette value chain is reeling under penalizing taxation on account of continuous increases in excise duties and compensation cess on cigarette, which have cumulatively gone up twice between 2011-12 and 2017-18. This resulted in reduction of cigarette volumes by a fourth since 2012-13.

It has also sent the appeal to the offices of Prime Minister and Union Ministries of Health and Family Welfare, Agriculture and Commerce and Industry. 

The FAIFA represents farmers growing commercial crops in Andhra Pradesh, Telangana, Karnataka and Gujarat.

The association wanted the Minister to correct an error in cigarette taxation under the new tax regime, which did not account for the cascading effect on excise duty which was in vogue in the pre-GST era.

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