Tobacco Board Appeals to Finance Minister Over Cigarette Tax Hike Concerns
The Tobacco Board, operating under the administrative control of the Department of Commerce, has formally addressed a letter to Finance Minister Nirmala Sitharaman, highlighting the severe repercussions of the recent excise duty increase on cigarettes. This unprecedented tax hike, which took effect on February 1, has led to a real-term price surge of up to 60 percent, sparking alarm across the industry and among millions of farmers and workers dependent on tobacco cultivation.
Rising Threats from Illicit Cigarette Trade
In the communication dated February 10, Tobacco Board Chairman Yashwanth Kumar Chidipothu emphasized that steep tax increases heighten the risk of accelerated illicit cigarette trade, a phenomenon recognized globally as a significant economic and governance challenge. The unregulated market not only deprives governments of substantial tax revenues but also undermines legitimate businesses, fuels organized criminal networks, and poses serious risks to public health and security.
"Considering the urgent industry situation and the significant impact on the farming community, I request you to intervene and revise the excessive duty rates on tobacco products," stated Chidipothu, who is also a senior BJP leader. He noted that he was writing on behalf of Flue-Cured Virginia (FCV) tobacco farmers who have expressed serious concerns over the tax hike, with reports indicating that farmers have begun staging protests and submitting representations to their respective Members of Parliament.
Broader Economic and Social Consequences
The chairman further elaborated that high tax and price differentials create strong incentives for smuggling, particularly in contexts where enforcement capacity is constrained. Weak border controls, fragmented oversight, and the absence of effective tracking and tracing mechanisms allow illicit operators to exploit policy gaps. Moreover, illicit cigarettes increasingly serve as conduits for organized crime and money laundering, exacerbating the problem.
The consequences extend beyond mere revenue loss, with global evidence suggesting that billions in excise and tax revenues are diverted annually to the illicit economy. This diversion reduces funds available for critical public services, while legitimate manufacturers face shrinking market shares, job losses, and plant closures. Consumers, in turn, 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.
Impact on Farmers and the Tobacco Value Chain
Chidipothu stressed that the unprecedented increase in excise duties has created serious distress across the tobacco value chain, affecting millions of farmers, workers, and small shops reliant on this sector for their livelihoods. The tax hike is expected to severely depress farmer incomes, as the legal cigarette industry—the primary domestic buyer of FCV tobacco—is likely to sharply curtail its offtake. This could leave farmers unable to recover even the basic cost of cultivation, currently estimated at around Rs 200 per kilogram.
"There is widespread concern that market prices could collapse, pushing farmers into acute and potentially irreversible debt," he warned, citing historical data where a 22 percent tax increase in 2014 resulted in a price decline of Rs 20 to 30 per kilogram for farmers.
Call for a Balanced Policy Approach
To address the illicit cigarette trade effectively, the Tobacco Board Chairman advocated for a balanced and coordinated policy approach. This includes strengthened enforcement mechanisms, the implementation of effective track-and-trace systems, coherent and enforceable regulations, and enhanced international cooperation. Such measures are crucial to mitigating the adverse effects of the tax hike and safeguarding the interests of all stakeholders involved in the tobacco industry.
