Tobacco Board Chairman Appeals for Government Intervention on Excise Duty Hike
In a significant development from Guntur, the chairman of the Indian Tobacco Board, Yashwanth Kumar Chidipothu, has made a formal appeal to Union Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal. He has urged them to carefully consider the pressing concerns of the tobacco industry and to revise the recently imposed excise duty on cigarettes.
Unprecedented Tax Increase Sparks Industry-Wide Concern
Addressing the media on Tuesday, Yashwanth Kumar revealed that he has sent detailed letters to the union ministers. These communications highlight the severe adverse impact on the entire tobacco industry, as well as on millions of farmers and workers, resulting from the unprecedented increase in excise duties on cigarettes that was officially notified on December 31, 2025.
"This duty has effectively resulted in a 60 per cent increase in prices in real terms," stated the Board chairman emphatically. He called for immediate intervention from the Centre to address this critical issue and to safeguard the interests of the vast agricultural community dependent on tobacco cultivation.
FCV Tobacco Farmers Face an Uncertain Future
Yashwanth Kumar expressed particular worry about the future of Flue-Cured Virginia (FCV) tobacco farmers. These farmers have been approaching the Tobacco Board in large numbers to voice their serious concerns over the tax hike. The situation has grown so dire that farmers have begun staging protests and submitting formal representations to their respective Members of Parliament out of sheer distress.
The steep tax increases are not merely a financial burden; they risk significantly accelerating the growth of the illicit cigarette trade. This illicit market has emerged globally as a serious economic and governance challenge. The unregulated sector deprives governments of substantial tax revenues, undermines legitimate businesses, fuels organised criminal networks, and poses significant risks to public health and national security.
Illicit Trade: A Conduit for Crime and Revenue Loss
"High tax and price differentials create strong incentives for smuggling, particularly when enforcement capacity is constrained," explained the chairman. He detailed how weak border controls, fragmented oversight, and the absence of effective tracking and tracing mechanisms allow illicit operators to exploit policy gaps. Furthermore, illicit cigarettes increasingly serve as a conduit for organised crime and money laundering activities.
The consequences extend far beyond simple revenue loss. Global evidence suggests that billions in excise and tax revenues are diverted annually to the illicit economy, drastically reducing funds available for essential public services. Simultaneously, legitimate manufacturers face shrinking market shares, job losses, and potential plant closures. Consumers are also at risk, as they are exposed to products that bypass health regulations, lack age-verification safeguards, and are often linked to other illegal goods such as counterfeit cigarettes, illicit vapes, and nicotine pouches.
A Call for Balanced Policy and Coordinated Action
The Tobacco Board chairman emphasised that addressing the illicit cigarette trade requires a balanced and coordinated policy approach. This must include:
- Strengthened enforcement mechanisms
- Effective track-and-trace systems
- Coherent and enforceable regulations
- Enhanced international cooperation
He stressed that the issue is not merely fiscal in nature but has wider implications for farmers' livelihoods, employment, public health, and law enforcement, warranting urgent and comprehensive attention from the government.
Deepening Crisis for Tobacco Farmers
"The unprecedented increase in excise duties on cigarettes has created serious distress across the tobacco value chain, affecting millions of farmers, workers, and small shops who depend on this sector for their livelihoods," said Yashwanth Kumar.
The tax hike is expected to severely depress farmer incomes. The legal cigarette industry, which is the primary domestic buyer of FCV tobacco, is likely to sharply curtail its offtake in response to the price increases. This would leave farmers unable to recover even the basic cost of cultivation, currently estimated at around Rs 200 per kg.
There is widespread concern that market prices could collapse, pushing farmers into acute and potentially irreversible debt. Farmers have pointed out that a 22% tax increase in 2014 resulted in a price decline of Rs 20 to 30 a kg. Given today's significantly higher input costs and an existing global surplus of tobacco, prices are now feared to fall by Rs 60 to 70 per kg, substantially deepening farmer distress.
Risk of Boosting Illicit Trade
Farmers have also voiced serious concerns about the new tax system, warning that it could significantly boost illicit trade. With cigarette prices in India potentially rising to around Rs 400 per pack compared to Rs 75 to 80 in neighbouring countries, smugglers could gain a major, unfair advantage, further destabilising the legal market and harming domestic producers and the economy.
