New Delhi, Jan 9,2023: The new year has opened with a spoiler for the smugglers of foreign cigarettes in India, who otherwise consider this time of the year as the period to cheer.

While the country was busy with people exchanging New Year greetings, the team of Vijayawada Customs Preventive Commissionerate was busy seizing a massive consignment of 30 lakh sticks of imported cigarettes of the Paris tobacco company, a European brand, near Narasaraopet town in Guntur District of Andhra Pradesh. The value of the seized stock in the black market is more than Rs 5 crore.

In another recent development, the team of Assam Rifles seized foreign cigarettes worth Rs 41.60 lakh from the Myanmar border in the Champhai district of Mizoram.

Again, on January 5, four Lakh cigarette sticks valued at Rs 30 lakh were seized by the Mumbai Customs Officers at the Chhatrapati Shivaji Maharaj International Airport.

In recent years, the Indian government has made a concerted attempt to curb the menace of cigarette smuggling, and the three recent seizures are a major win for enforcement agencies. However, these seizures are only the tip of the iceberg.

According to the members of the seizure teams, smuggling in cigarettes particularly picks up during the winter months, as demand is higher and seizure activity becomes challenging because of weather conditions in border regions. “Cigarettes are an ideal target for smuggling as their demand is always high, pack sizes are small making it easy to conceal them and tax savings for smugglers are huge,” reveals an official without wanting to get named.

This is corroborated by the official data released by the Department of Revenue Intelligence (DRI). As per the DRI Annual Report, during 2021-22, 11 crore cigarette sticks valued at Rs 93 crore were seized.

As per the DRI report around half of the seized cigarettes originated from Myanmar as the borders are porous here, followed by UAE at 22 per cent and the rest about 31 per cent is unknown.

Despite hectic efforts by the enforcement agencies, what makes it difficult to control smuggling is the fact that smuggled cigarettes are on average 50 per cent cheaper in India and the market size is huge.

As per a FICCI CASCADE (Committee Against Smuggling and Counterfeiting Activities Destroying the Economy) report titled Illicit Markets: A Threat to Our National Interests the illicit cigarette market in India was a massive Rs 22,930 crore in 2019-20. As per a report by Euromonitor, presently India is the 4th largest illicit cigarette market in the world. This thriving market is the cause of many negative impacts on the country ranging from huge employment loss to loss of an astounding amount of tax revenue.

The rampant cigarette smuggling in the country has led to a doubling of tax loss for the government from Rs 6,240 crore in 2012 to a massive Rs 13,331 crore in 2020, as per the FICCI CASCADE report.

Illicit markets pose a real and present danger to the interests of the nation and a multi-pronged approach is needed to tackle this threat.

P.C. Jha, Former Chairman, CBIC (Central Board of Indirect Taxes & Customs) and Advisor – FICCI Cascade said, “It is heartening to note the seriousness of the government to curb illegal activities injurious to the Indian economy such as smuggling, etc. Law enforcement agencies are doing commendable work despite several challenges which is quite evident from the seizure of smuggled goods affected by agencies like Customs, DRI, Assam Rifles, BSF, etc.

“The way forward would be to further improve the capacity of such agencies by providing them with the latest sophisticated gadgets, artificial intelligence etc; at the same time also raising the awareness of the public at large about the ill-effects of buying such goods.”

“Simultaneously with improving the efficiency of enforcement agencies, the government has also to give due emphasis to the consideration that high rates of taxation and cumbersome procedures increasing the cost of compliance are also important factors which should not be ignored.

“High rates of taxation increase profitability of evasion and complex procedures discourage taxpayers from compliance of tax laws. I have no doubt that due regard would be paid by the policy makers in the government to these important points,” Jha added.

Historically, the global health lobbies have demanded imposition of heavy taxes on the Indian tobacco industry. These taxes have not helped reduce the consumption of tobacco which has only grown over years, and on the contrary, has resulted in massive revenue losses for the government by providing tax arbitrage to illicit traders and smugglers. This puts an extra burden on enforcement agencies to keep an eye on foreign cigarettes entering India through its porous borders.

Adding to this trend is a sharp growth in illegal cigarettes manufactured domestically which evade GST and any other local taxes and hence are cheaper for consumers as well as retailers who get higher trade margins. Cheaper, tax evaded cigarettes are in big demand across all cities in India. Presently Illicit cigarettes currently exceed one-third of the legal cigarette volumes available in the Indian market.

Smuggled cigarette packs also do not bear the pictorial and textual health warnings covering at least 85 per cent of the packaging space as mandated by COTPA (Cigarettes and Other Tobacco Products Act). This gives the impression that these foreign cigarettes are healthier than the ones which carry such warnings on their packs. On the contrary, smuggled cigarettes are a dangerous health hazard as most of these are counterfeits with inferior quality tobacco and other ingredients.