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Cigarette Tax Hike Sparks Smuggling Fears
4 Feb
Summary
- New excise duty may significantly boost illicit cigarette trade.
- Tobacco cultivators and farm workers face substantial job losses.
- Illicit cigarette consumption could surge by 39 percent.
Additional excise duty and a health cess implemented on February 1 have led to a sharp increase in cigarette prices. This move is anticipated to significantly boost the illicit cigarette trade, which is already thriving due to tax arbitrage.
The report projects a substantial negative impact on the tobacco value chain and the broader economy. Specifically, it estimates a nearly 20 percent reduction in Flue-Cured Virginia (FCV) crop offtake. This is expected to cause approximately 2.6 million man-days of employment loss in farming and related activities.
This development poses a significant challenge for FCV tobacco cultivators and agricultural laborers, especially women, and those in associated industries. The rise in cigarette prices is estimated to increase the demand for illegal tobacco products by nearly 39 percent, leading to an increase in illicit consumption.
Furthermore, the FCV tobacco agri sector has been facing structural stress due to disproportionately high taxation compared to other tobacco products. The latest excise hike is likely to worsen this imbalance, potentially leading to revenue gains being outweighed by broader economic costs such as reduced farm incomes and employment losses.
