Hyderabad: India is fast becoming the manufacturing hub of illegal cigarettes in the world. With illicit manufacturing plants having been set up in northern states like Rajasthan, Punjab, Haryana, UP, and MP; India is fast gaining the dubious distinction of becoming world’s 4th largest market for illegal cigarettes.
This rapid growth in illicit cigarette manufacturing, including spurious copies of many foreign brands, results from glaring loopholes in laws like Industries Development Regulation Act (IDR) Act 1951. IDR regulates cigarette licenses.
Post the 1991 de-licensing, only five industries are under compulsory licensing including cigars and cigarettes of tobacco and manufactured tobacco substitutes. No new licenses have been granted for the manufacturing of these items since 1999. Yet illicit manufacturing of cigarettes continues using a flaw in the Act.
For instance, the definition of ‘factory’ under the Act does not make any exceptions on products. It says that units employing less than 50 workers with the aid of power, or 100 workers without the aid of power, can set up a factory without obtaining a compulsory license.
Over the years, many illicit cigarette manufacturing units have sprung up all over India, under Micro, Small and Medium Enterprises. According to the Tobacco Board of India, there were 41 tobacco manufacturers that were registered with it in 2018. This is defeating the tobacco control policy under which the government of India had refused to grant any new licenses to manufacture new cigarettes ever since 1999.
The government hence must push for suitable amendments in the IDR Act to ensure that punitive measures are incorporated for those using the loopholes to manufacture cigarettes.
To add to this, given the trebling of taxes on cigarettes since 2011-12 and substantial advisories against smoking and tobacco products, the domestic illegal manufacturing of cigarettes including manufacturing of copies of well known international brands have galloped in recent year.
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This has put the legal manufacturers not only at a disadvantage as the spurious foreign brands are available at cheaper prices but also they duck the taxes due to government. The spurious manufacturers take advantage of arbitrage opportunities against legal products which come with a higher tax component and thus are sold at higher prices. Not only is it causing revenue losses to the tune of Rs 13000 crore per annum to the government but spurring anti-social activties.
These illegal manufacturers evade any taxation making these cigarettes much cheaper than legal cigarettes and lure smokers for cheaper products. In addition to these, the funds generated by these companies are further reinvested to fund illegal activities.
Little surprise with huge implications for government revenues. In the context of growing menace of illicit trade across the sector, a FICCI report quoted Najib Shah, Former Chairman, Central Board of Indirect Taxes and Customs as saying that illicit manufacturers and non-paying of taxes impact government revenue on a large scale and hence it is imperative that Government must frame policies regarding the subject.
“This is a serious issue and Ministry of Health must take urgent measures to stem this rot from further growing,” said RS Tiwari of Centre for Public Awareness.
Illegal cigarette trade in India comprises of almost 1/4th of the domestic industry. It comprises of two components - one is internationally smuggled cigarettes and another is the tax evading illegally manufacturing units locally.
Recent raids conducted across NCR by agencies including Faridabad DCP, Health Department of Haryana, Ghaziabad and Noida District Tobacco Control Committee it was found that these small units are not just manufacturing their own brands, but also counterfeiting popular foreign brands like Paris, Win, ESSE and Mond.
In gross violation of all statutes, these illegally produced cigarettes do not only not carry the graphic health warning as mandated by COTPA or other information as mandated by the Legal Metrology, Packaging and Commodity Rules 2011. By not adhering to the mandatory graphic health warning it also gives a false assurance that these products are safer than the legally produced products.
