Contraband cigarette market in India estimated at Rs 1,700 cr

NEW DELHI: ‘Extremely high’ excise duty on cigarettes in India has increased the incentives for contraband trade in the country, estimated at Rs 1,700 crore, according to a Euromonitor International study.

The illicit cigarette market in terms of volumes has grown by 57.7 per cent during 2004 to 2009 in India, as per the study commissioned by industry body Assocham.

Commenting on the findings, Tobacco Institute of India Director Udayan Lal said, “The extremely high excise duty rates on cigarettes provide a very lucrative opportunity for evasion.”

According to him, the clandestine activity has gained momentum, after the central government cummulatively increased the excise duty on cigarettes by 42 per cent.

“The cost of contraband in India is estimated at USD 425 million (Rs 1,700 crore) per annum and is threatening the livelihoods of 5 million tobacco farmers,” according to the report.

The forecast is that illicit consumption will continue to rise over the next five years.

Illicit cigarettes consist of not only smuggled international brands, but also duty-evaded cigarettes manufactured domestically by small, unscrupulous manufacturing units.

“The Institute seeks tax stability on cigarettes, coupled with a widening of the tax base through reduction in the large tax differential between cigarettes and other tobacco products,” Lal said.

In the list of top 15 countries with high consumption of illicit cigarettes, India is at the fifth position in terms of growth rate between 2004-2009 in volumes, followed by Malasiya, Romania, Pakistan and France, respectively.

“In 2008, the per pack price gap between tax paid and contraband widened across all price segments. For example, a premium brand pack of 20 sticks of India Kings retailed at Rs 100, while its smuggled competitors such as Marlboro and Rothmans were available at a steep discount, selling for Rs 80-85,” according to the report.

Globally, the world’s top 15 countries account for some 79 per cent of global illicit cigarette consumption with China the largest (36.2 per cent), despite a 19.4 per cent fall in illicit cigarette consumption over 2004-09.

“The BRIC countries accounted for around 50 per cent of all illicit trade in 2009,” it added.


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