Statutory Warning: Smoking illegal cigarettes kills economy

At a time when the country’s annual financial budget plan every year results in a hike in prices of tobacco products, thereby drilling a neat hole in chain smokers’ wallet, Chinese cigarette brands have comfortably sneaked into tiny little stalls in almost every metro cities of India, relaxing that heartburn to a great extent. Brands like Baisha, Marboro, Luvin, Golden Elephant and Win would look as premium as Wills and Marlboro, but a pack of cigarettes is way cheaper than what the renowned brands cost. While some of the most popular cigarettes like Gold Flake or Navy Cut cost between Rs 10-12 per piece, the Chinese made cigarettes are priced at Rs 3. At a price almost as cheap as bidi, these brands evade tax and customs duty.

Not only do smokers prefer it, even the retailers are fast filling up the shelves with these as they earn Rs 10 for every 10 Chinese sticks, while the other ones fetch around Rs 4 for 10. In India, where 102 billion cigarettes were smoked in FY 15, illegal brands aren’t something new
India's share of illicit cigarettes was 19 % in 2014, up from 12 % in 2006, as per Euromonitor International data. Illicit cigarettes have become popular as India boosted excise duty on cigarettes to 40 % in the past two years alone, resulting in a pack costing Rs 30 or more when compared with Indian brands selling for Rs 100 upwards. In addition, amateurs seeking extra income are making and selling cigarettes illegally.

"Unscrupulous operators have set up manufacturing units without compulsory licensing. Cigarettes from these units are available in the market at one rupee per stick, which is even lower than the tax applicable on such cigarettes," said Syed Mahmood Ahmad, director at the Tobacco Institute of India.
As a result, retail sales of legitimately sold cigarettes dipped 14-15 per cent in the second half of FY15 and 17 per % in the first quarter of this financial year, the steepest decline ever.

"Unprecedented pressure on the legal cigarette industry with imposition of steep taxes has led to consumption being diverted to tax-evaded as well as smuggled products," YC Deveshwar, chairman of ITC, the country's largest cigarette seller, told shareholders in July.

"The wide proliferation of illegal cigarettes has deprived the exchequer of significant revenue, eroded income of Indian farmers and threatened livelihood of many engaged in the supply chain by driving the trade into unscrupulous hands and creating a large unaccounted flow of foreign exchange out of the country," added Deveshwar.

Where taxes are increased at moderate rates, it will "help the legitimate industry to progress and not be taken over by the illegitimate industry," said Sanjiv Puri, president for FMCG at ITC. He added that one in every five cigarettes sold is illegal - those on which no tax is paid, don't comply with graphical health warning norms and where quality may be a concern.
While Chinese brands with flavours like Green Apple, Strawberry, orange and mint are flooding the market, there are Indonesian brands like Gudang Garam and Djarum Black that are in the market for quite sometime now and are preferred by many.

These cheap imported cigarettes skip law in many ways. While evading tax, these also have no mention of any statutory warnings against smoking. Often smuggled through Myanmar, these brands enter India and reach villages and towns.

(Image Source: Emaze.com)