Tobacco companies have defrauded the Government of India for Rs. 390.38 crore

REACT: To safeguard public health and improve revenues, tobacco products be treated at par with other sin goods, like alcohol, guns and the like.
Tobacco use is the leading cause of death and disease in India, and kills more than 1.3 million adults every year, mainly from TB and cancers. The myriad forms of chewed and smoked tobacco products that are consumed in India are extremely affordable because of weak taxation policies and lax regulations on tobacco trade. As a result, not only are legal tobacco products cheap but a massive illicit and unaccounted trade in tobacco further depresses price of these products.
REACT (Research Action For Tobacco Control), a network of independent researchers works towards highlighting all such topics on tobacco control that needs urgent attention of the general public and policy makers.
India’s tobacco industry maintains that illicit trade is undertaken by a handful of unscrupulous actors who trade in foreign brands, and that it has no role in smuggling and counterfeiting. REACT reviewed all publicly available government sources like The Comptroller and Auditor General of India (CAG); Directorate of Revenue Intelligence (DRI); Central Board of Indirect Taxes and Customs (CBIC) and Parliament reports, and found tobacco companies including prominent cigarette and pan masala companies which have consistently evaded paying taxes or under reported revenues to defraud the government. Some domestic unscrupulous tobacco companies have also been found complicit in other illegal trade within India, and may be linked with smuggling of drugs, counterfeit currency and arms. All these together not only threaten public health but also national security.
The study found at least 108 CAG reports between 2009-2018 which shows that the tobacco industry uses a variety of means to avoid paying taxes and selling their products illicitly. The CAG reports alone found that tobacco companies have defrauded the Government of India for at least Rs. 390.38 crore in this period. The DRI reports also mention massive quantities of illicit cigarettes seized from Maharashtra, hundreds of tonnes of tax-evaded betel nuts from Andhra Pradesh and large quantities of pan masala, most which were trafficked using trains and railway stations. Central Board of Indirect Taxes and Customs (CBIC) reports show a clear pathway of illicit trade of imported and domestically produced tobacco products, and in particular cigarettes. Most movement of illicit products occurs through India’s extensive railway systems. In June 2020, a special mission termed Operation Kark (or cancer in Hindi) unearthed a Rs 250 crore smokeless tobacco fraud in Indore, among others across the country. The Parliament of India keeps records of parliament debates and committee reports which show a range of tobacco industry malfeasance. A recent reply by the Minister of State of Finance in the Parliament said that there are a total 189 cases of evasion of excise and customs duty greater than Rs 100 crore. And of these, at least 25 cases (14%) were by tobacco companies. Earlier Parliament replies revealed links between major gutka and pan masala manufacturers and the Bombay underworld.
Opinder Preet Kaur Gill, while releasing the REACT report said, “All tobacco kills, whether it is legally manufactured or illegally traded. Poor taxation policies and a freehand to manufacturers have given a free hand to anyone to set up a tobacco unit or a shop. There is virtually no regulation. Prime Minister Modi’s dream of TB-free India cannot happen with the rampant growth of legal and illegal tobacco trade in India”.
Surinder Verma, Chairman, Citizen Awareness Group said, “Illicit tobacco trade also makes tobacco products cheap and attractive to vulnerable groups like children, adolescents and marginalised communities. Adding to It, Dr Rakesh Gupta, President SIPHER, SAID, “The government loses crores of rupees due to untaxed and smuggled tobacco. It is also well known that tobacco use is a gateway for other more serious addictions in the state.”
The REACT report makes three broad recommendations to the Union government. First, it suggests that in order to safeguard public health and improve revenues, tobacco products be treated at par with other sin goods, like alcohol, guns and the like. Strengthening the supply chain will improve overall tax administration and enforcement which will reduce illicit trade and garner higher revenues. Second, the Government of India must develop a robust data and information system to monitor the tobacco sector, from cultivation to consumption, which will enable better fiscal management and regulation. Third, the Goods and Service Tax (GST) Council must adopt an inflation-linked dynamic tax rate that is corrected annually, and it should remove all distinctions like segments and slabs between products, phase out subsidies and concessions to tobacco trade, and peg all inputs that make tobacco products at ‘sin tax’ rate.
Additionally, the REACT report also recommends that state government adopt vendor licensing with provisions for license being at par with alcohol and other restricted items to reduce illicit tobacco trade.