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Illegal cigarette trade flourishing in Karnataka

Posted on Nov 06, 07:55PM | UNI

Karnataka has emerged as a big market for illegal cigarettes trade in India with the monthly supply estimated at around 30 million pieces and leading to a revenue loss of Rs 60 crore annually to the state exchequer, according to a report.

Locally manufactured, tax-evading cigarettes have an impressive share of the cigarette market and are continuously growing in the state. It is an alarmingly large and well-organised business: with some of India's largest manufacturers of illegal cigarettes (based outside the state) supplying over 30 million cigarettes in the state every month. Consequently, the government suffered an annual tax loss of over Rs 60 crore.

The harsh taxation on cigarettes in India is the key reason for the huge and growing market for illegal cigarettes. Despite accounting for a meager 15 per cent share of total tobacco consumption, cigarettes generate over 75 per cent of the tax revenue from tobacco according to the Industry sources.

According to the Euromonitor's report (leading agency in tracking world-wide illicit trade), India is the world's sixth largest market for illicit cigarettes and is also one of the fastest growing.

In past five to six years, illicit trade in cigarettes have grown by almost 60 per cent and commanded 16 per cent of the Indian market, which is probably bigger than the second biggest cigarette company in the country. As per their predictions, in next few years share of illicit trade in India may reach upto 23 per cent.

Although, the category of 'illicit cigarettes' also includes smuggled international brands, it consists principally of duty-evaded cigarettes manufactured domestically by small, unscrupulous units. These units do not pay the high excise and VAT levied on cigarettes, and conduct flourishing clandestine businesses. Due to tax-evaded / illegal trade in cigarettes, the national exchequer suffers an annual revenue loss of around Rs 4,000 crore.

The sources said in Karnataka, the state level taxes on cigarettes are currently at 19 per cent (VAT 17pc + Entry Tax 2pc ), which is much higher than the VAT of 12.5pc introduced across all states in 2007. Hence, evading tax payment on cigarettes becomes a particularly inviting proposition in the state.