Industry body ASSOCHAM on Friday called for increasing customs duty on cigarettes and placing their imports in the restricted list to curb contraband trade which is resulting in 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 declining sales in their home markets. They either set up operations in target countries through direct investments or imports, thereby creating a legitimate umbrella for distribution and demand creation activities.
The demand thus created is actually fulfilled through contraband stocks that are sold through established distribution channels, said the Associated Chambers of Commerce and Industry of India (ASSOCHAM). Porous borders and cigarette imports under 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 per cent to the WTO bound rate of 150 per cent subject to a minimum duty equivalent to 50 per cent of the prevailing countervailing duty, that is length-based specific central excise duty applicable on cigarettes manufactured within the country.
“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 secretary general DS Rawat in a representation to the Directorate General of Foreign Trade.
On the other hand, high taxes on domestic cigarettes have led to a huge demand for smuggled ones which have captured five to seven per cent of the market. Besides leading to revenue losses, cigarette smuggling aggravates under-utilisation of domestic capacity and affects farmers by eroding demand for Indian tobaccos.
To stop this malpractice, cigarettes should be reinstated to the restricted list forthwith, said Mr Rawat adding 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.
–INN–