Y.S. RANA , CHANDIGARH—Wake up call to state government as illegal cigarette industry in Himachal Pradesh is estimated more than 20 per cent of the total cigarette market in the state. The illegal players have taken over this market and are growing at a higher rate. In case of alcohol, the illegal market is growing significantly in value and much higher in quality especially for IMFL (Indian made foreign liquor) and imported liquor. The two sectors are causing revenue loss of crore of rupees to the state government.
The report has also revealed it is one of markets with high growth of illegal cigarettes in the country. Illegal cigarette industry is estimated to be around 22-23% of the total cigarette market in the State. Himachal Pradesh with 40 per cent (36 per cent VAT and 4% Entry Tax) has the highest Tax rate on cigarettes in the country. As a result the prices for legal cigarettes are high which fuels an impressive growth of illegal cigarette industry in the State. Price of illegal cigarette pack in Himachal Pradesh is at one fifth of the price of a legal packet which makes it very attractive to consumers, particularly youth and rural population.
In this process the State is estimated to lose revenue of more than Rs 50 crores annually from the cigarette industry. Himachal Pradesh, on account of high VAT rate, is also losing revenue on account of VAT refund. A dealer buying cigarettes in the State after paying VAT @36%, can make an inter-State sale to a low VAT State against Form C at 2% CST and can claim a VAT refund of 34% – which is a loss to Himachal Pradesh. It is thus clear that the objective of increasing revenue from the cigarette industry in the State with a steep increase in VAT has been soundly defeated. State Govt has lost heavily in revenue, traders of the State have lost their business to smugglers and anti-social elements. Tobacco control objectives are defeated and illegal traders are filling their coffers.
Smuggled international contraband cigarettes are another big menace contributing significantly to the alarming growth of illegal cigarettes in Himachal Pradesh, states the report. High Tax on cigarettes in Himachal Pradesh compared to the rest of the country has also resulted in larger scale diversion of cigarettes trade into other State
It is revealed in a quantitative study of FICCI CASCADE (Committee against Smuggling & Counterfeiting Activities Destroying the Economy), titled – ‘Illicit Market: A Threat to Our National Interest’ at a hotel here today. It evaluates the impact of illicit markets on various economic sectors in manufacturing industry, packaged foods, computer hardware, automobiles, mobile phones, tobacco and alcohol and media and entertainment industry.
In 2014, on account of the illicit markets in seven sectors was Rs 39,239 crore compared to Rs 26, 190 crore in 2012. The loss is inclusive both indirect and direct taxes. Of this the loss to indirect taxes is is Rs 34,020 crore and to direct taxes it is Rs 5218 crore, report states the report. The study has also discovered that during the course of two years from 2011-12 to 2013-14, revenue loss to the Government has grown-up exponentially by Rs. 13,049 crores, recorded an increase of 49.8 per cent.. 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. 9139 crores..
While unveiling report in Shimla on Wednesday, Mr P.C. Jha, Adviser FICCI CASCADE and former Chairman, Central Board of Excise & Customs said that during the last twenty years, the volume of the counterfeiting activity has increased 100 times and the size of trade in counterfeited goods was 10 cent of the legal international trade (around 2% of the world’s overall economic output).”
Quoting the recently released FICCI CASCADE study, Mr. Jha stated that the loss to manufacturing related sectors has increased by 44.4% in the two years, from Rs72,969 crore in 2011-12 to Rs 105,381 in 2013-14.
He further stated that the study also established a relationship between high taxes and availability of illicit products. High tax rates tend to exacerbate illicit markets by creating greater demand for cheap and counterfeit substitutes.
Mr. Sanjay Kumar (IPS), Director General of Police, Government of Himachal Pradesh also shared his views about the extent of the menace in the state and also highlighted the various initiatives taken by HP police to curb this growing socio-economic threat. He also thanked FICCI CASCADE for taking up the issue and said that the masses should say ‘NO’ to smuggled good.
Mr Deep Chand, Adviser FICCI CASCADE and former Special Commissioner of Police, New Delhi said that in the past few decades, leading intelligence and law-enforcement agencies around the world have found conclusive evidence of the increasing involvement of terrorist organizations in counterfeiting, piracy and smuggling activities to fund their activities. Some of them were transferring portions of their proceeds to terrorist organizations.
Over the years, popularity of such illegal cigarettes (smuggled and domestic tax-evaded illegal cigarettes) has spread across urban and rural youth as they tend to be cheap as well as carry international brand names. Such illegal cigarettes totally defeat the tobacco control objectives of the government as they neither bear any Health Warnings required as per Indian laws nor have other mandatory declarations like MRP, Date of Manufacture or Place of Manufacture.