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India losing Rs 5 billion forex annually due to illegal cigarette-imports

Contraband trade in cigarettes in India is increasing at an alarmingly high rate of 20 per cent per annum, causing an unaccounted outflow of foreign exchange up to Rs 5 billion every year, a document prepared by World Health Organisation, or WHO, has said.

The document was prepared on the basis of a paper on 'Multi-sectoral and inter-sectoral approach to national tobacco control', presented by the deputy director of Indian Council of Medical Research Kishore Chaudhry during a WHO conference on tobacco held recently in New Delhi.

Smuggling is an outcome of an increased taxation on tobacco products, the document said, adding that cigarette smuggling in the country was rampant from Nepal and Myanmar. Cigarettes smuggled from these nations cost much less than the ones manufactured in India, it said.

The document revealed that in 1995 in Mizoram -- an Indian state bordering Myanmar -- a packet of 20 cigarettes smuggled from Myanmar cost Rs 7 as compared to approximately Rs 20 for a packet of 20 comparable size Indian-made cigarettes.

The high tobacco taxation in India has opened up avenues for legal or illegal imports from countries having lower rates of tobacco tax.

Stressing the need to develop a strategic plan to check increased tobacco smuggling in the wake of increased taxation on any tobacco product, Chaudhry, in his paper, said that the plans would be effective and successful if the police and border security forces cooperate in its execution.

Legal channels of tobacco imports like duty free import under the baggage rules, duty free shops at airports, duty free imports by agents for embassies, and duty free import of cigarettes for re-export should be curtailed to control rampant smuggling of tobacco, Chaudhry said.

Advocating a uniform tax policy on tobacco products, he suggested that foreign affairs, along with health, finance and commerce sectors should interact with the neighbouring countries for implementing a similar tobacco taxation structure to make tobacco products equally expensive in all countries.

The facility of tax-free exports should also be withdrawn from tobacco products, he added.

The paper said that the central government tax structure on tobacco products was complex, according to its available variety, and the unmanufactured tobacco without brand name does not have any excise duty on it. Till 1994-95, the government levied 40 per cent tax on chewing tobacco. However, chewing tobacco and snuff with a brand name currently attract 50 per cent excise duty.

The paper mentioned that the producers of smoking mixtures for pipes and cigarettes have a tax rate of 300 per cent, while bidi manufacturers producing less than 2 million pieces annually do not have to pay tax.

Chaudhry said that the government was realising majority of tobacco taxes from cigarettes. The paper said the cigarette industries, during financial year 1997-98, contributed an estimated Rs 5.50 billion as tax.

The paper revealed that the excise duty on cigarette changed in 1987 on the basis of its length and the current excise rates applicable on filter cigarettes vary from Rs 1,470 per thousand pieces on cigarettes longer than 85 millimeter to Rs 550 per thousand pieces for cigarettes smaller than 70 mm.

Besides, the excise on non-filtered cigarettes was still less, being Rs 370 per thousand pieces on 60 to 70 mm long cigarettes and Rs 110 per thousand on smaller cigarettes, the paper added.

However, the central government had enhanced the excise duty by 10 per cent on the non-filtered cigarettes smaller than 60 mm during 1999-2000 financial year.

Chaudhry said that the rates of luxury taxes and excise levied by the central government varied from state to state. Referring to the Indian taxation policy on tobacco, he said that it has not been governed by health hazards of these products.

The rates of taxation have been generally in line with the guiding government concern that the people in the lowest strata of community should pay lesser taxes and the finance ministry tried to keep the prices of certain tobacco products cheaper for low income groups, he added.

Expressing concern over apathetic attitude of experts, he said that there was no coordination between the financial experts and tobacco experts who were not interacting with the health experts regarding taxation on tobacco products.

Highlighting the advantages of involvement of experts in tackling the tobacco problems, Chaudhry, in his paper, said that the specialists would concentrate on the aspects related to their sphere of expertise.

He said greater interaction with specialists from other sectors like health, commerce, agriculture, labour, welfare, police, foreign affairs and others would help them assess the real magnitude of hazards due to tobacco use.

UNI

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