Hike Duty On Cigarettes: ASSOCHAM

Industry body ASSOCHAM, on Friday, called for increasing the customs duty on cigarettes and placing their imports in the restricted list, to curb contraband trade, which, it said, is resulting in an estimated revenue loss of more than Rs. 2,000 crore in unpaid duties and foreign exchange outflow.

Multinational companies are seeking to expand their business in developing countries like India due to the declining sales in their home markets, ASSOCHAM said.

They either set up operations in target countries through direct investments or imports, thereby creating a legitimate umbrella for distribution and demand-creation activities, it added.

The demand thus created is actually fulfilled through contraband stocks that are sold through established distribution channels, said ASSOCHAM.

Porous borders and cigarette imports under the open general license make it extremely difficult to monitor and regulate the inflow of stocks. Thus, customs duty on cigarettes should be increased from 30% to the WTO bound rate of 150%, subject to a minimum duty equivalent to 50% of the prevailing countervailing duty, that is a length-based specific central excise duty applicable on cigarettes manufactured within the country, ASSOCHAM opined.

"This will go a long way in resolving the problem of tax evasion by some unscrupulous importers by under-invoicing the value of imported cigarettes," said ASSOCHAM's secretary general D S Rawat, in a representation to the Directorate General of Foreign Trade.

High taxes on domestic cigarettes have led to a huge demand for smuggled ones, which have captured 5% to 7% of the market, he said. Besides leading to revenue losses, cigarette-smuggling aggravates the under-utilisation of domestic capacity, and affects farmers by eroding demand for Indian tobaccos, he added.

To stop this malpractice, cigarettes must be reinstated to the restricted list forthwith, said Rawat, adding that their manufacture in export-oriented units and special economic zones should also be banned.

Leakages from duty-free channels at airports, and black marketing of cigarettes brought in under personal baggage allowance for personal consumption, are other significant sources of contraband cigarettes, the representation said. (INN)