Consumption of smuggled cigarettes has increased by over 90 per cent, equivalent to 12.5-23.9 billion sticks, in the last 10 years in India, revealed a new report on Thursday.
The report released by business chamber FICCI also stated that 74 per cent of the smokers were willing to switch to cheaply-priced smuggled or illegal cigarettes due to higher taxation on legal cigarettes.
“Over 56 per cent smokers prefer attractive packaging of foreign smuggled brands which doesn’t adhere to Indian regulations like 85 per cent pictorial health warning,” said the report by FICCI CASCADE (Committee Against Smuggling and Counterfeiting Activities Destroying the Economy).
The report was released during a seminar on Border Management and Illicit Trade organized by FICCI, attended by Minister of State for Home Affairs Hansraj Gangaram Ahir.
According to the report, the high and discriminatory taxes on legal cigarette industry in India were the primary drivers of illicit trade.
“Today, Indian smokers find the cheaper alternatives – smuggled cigarettes – more attractive and as per the report there has been over 90 per cent increase in consumption of smuggled cigarettes in the past 10 years. The illicit cigarette market in India is growing steadily and has increased from 11.1 billion sticks in 2004 to 23.9 billion sticks in 2015,” said the report.
As per FICCI CASCADE, the total loss to the government estimated for 2014, on account of the illicit markets, was Rs 39,239 crore.
“Amongst the various sectors, the maximum revenue loss to the exchequer on account of counterfeiting and illicit trade is attributed to tobacco products at 23 per cent, estimating a revenue loss of Rs 9,139 crore,” the report said.
Studies quoted in the report say that in Canada, taxes have been shown to increase the size of black markets and to cause economic activity to move underground as price-sensitive individuals look for creative ways to evade taxation.
“Studies have shown that in the tobacco industry, consumers’ willingness to switch from smoking legally purchased cigarettes and tobacco to contraband products increases with tax hikes,” said the report.
Quoting an econometric analysis led by Jean-Francois Ouellet, Associate Professor of Marketing at HEC Montreal, the report said that the consumer behaviour in Canada found that each additional dollar in taxes raised the propensity to resort to consuming contraband cigarettes by 5.1 per cent.
“A Taiwan study says for an increase of each Taiwanese dollar in the price of legal cigarettes, the probability of a consumer (who previously did not smoke smuggled cigarettes) to shift to smoking smuggled cigarette increases by 26.1 per cent,” said the report.
It added that in India, while the consumption of illicit cigarettes was going up, the use of tobacco in legal cigarettes was steadily going down.
“From 86 million kg in 1981-82, use of tobacco for legal cigarettes has gone down to 62 million kg in 2014-15,” said the report.