High taxes cited as the reason for the menace
Illicit cigarette trade in India has increased from 11.1 billion sticks in 2004 to 17.5 billon sticks in 2009, an increase of 57.7 per cent in the volume.
India emerged as the sixth largest market for illicit cigarettes in the world and the fourth largest in the Asia Pacific region, according to latest edition of Tobacco Institute of India (TII) News.
China topped in the list of illicit cigarette trade in the world with 193.1 billion sticks followed by Brazil (31.6 billon sticks), U.S. ( 23.3 billion sticks), Pakistan (21.5 billion sticks) and the Philippines (20.7 billion sticks).
The TII News said high taxation on cigarettes was the primary cause for the growth of the illegal cigarette trade. Based on the assumption that high cigarette prices would discourage people from consumption, cigarette taxes were being increased dramatically.
In India, for example, total taxes on cigarette account for as much as 150 per cent of their new value (ex-factory price). “This ever-escalating taxation policy for cigarettes creates an attractive arbitrage opportunity between legitimate, duty paid stocks and the tax-evaded suppliers from illegal sources,” said TII News.
In addition, the huge difference in tobacco price among neighbouring countries, which was primarily the outcome of differential tax rates, and the absence of effective measures to check smuggling contributed to illicit trade. Being light, easy to transport and to conceal amongst other goods were other factors that make cigarettes smuggling an attractive and profitable activity, it said. It is estimated that illegal trade in cigarettes causes revenue loss of Rs. 1,000 crore a year. Large-scale smuggling was estimated at 70 per cent of global illicit trade, it said.
Measures such as strict enforcement, policing of the borders, a ban on sale of cigarettes in duty-free shops and their exclusion from the duty-free baggage allowances would contain the contraband trade in cigarettes, the TII News said.