Union budget 2019: Nirmala Sitharaman urged to bring cigarette taxation to pre-GST level

New Delhi: Ahead of the Budget, farmers body FAIFA Thursday urged the government to correct “an error” in cigarette taxation under the new tax regime that did not account for cascading effect on excise duty, which existed in the pre-GST system.

Federation of All India Farmer Associations (FAIFA) said the entire legal cigarette value chain is presently reeling under “penalising taxation on account of continuous increases in excise duties and compensation cess on cigarettes”.

The body, which claims to represent farmers of commercial crops from various states, including Andhra Pradesh, Karnataka and Gujarat, said cumulatively tax on legal cigarette has gone up by 202 per cent between 2011-12 and 2017-18 leading to shrinkage of cigarette volumes by more than 25 per cent since 2012-13.

FAIFA President Javare Gowda said there was an increase in cess rates to correct an error in cigarette taxation under the new tax regime, which did not account for the cascading effect on excise duty, which existed in the pre-GST system.

“However, this has inadvertently led to an increase in compensation cess rates which, surely was not the intention of the government,” he added. The revised compensation cess rates have resulted in additional taxes of around 13 per cent above the pre-GST levels, Gowda said.

FAIFA claimed that increase in taxes have resulted in the inflow of huge quantity of illicit cigarettes in the market. The legitimate cigarette industry size in India, which was at 110 billion sticks in 2011-12, has dropped by 25 per cent to about 83 billion cigarettes in 2016-17.

“In contrast, the illegal, duty-evaded cigarette segment has grown to about 26 billion cigarettes in 2017, i.e., almost one-fourth of the Industry,” it said. It also asked the government to reinstate tobacco export incentives to boost income of Indian Flue Cured Virginia (FCV) farmers in line with government’s objective of doubling farmers’ income.