Amongst the various sectors, the maximum revenue loss was from counterfeiting and illicit trade is tobacco products 23% and Rs 9,139 crore.
GUWAHATI: A FICCI report has pegged the loss to the exchequer due to illicit trade in 2014 in respect of the seven sectors of the manufacturing industry at Rs 39,239 crore, up from Rs 26,190 crore in 2012.
The loss is inclusive of both indirect and direct taxes -- Rs 34,020 crore and Rs 5,218 crore, respectively, according to the report by FICCI CASCADE (Committee Against Smuggling and Counterfeiting Activities Destroying the Economy).
FICCI unveiled its nine sector report titled 'Illicit Market: A Threat to Our National Interest' in Guwahati on Tuesday. This is a quantitative study evaluating the impact of illicit markets on various economic aspects of the manufacturing industry, including sectors like FMCG, packaged foods and personal goods, computer hardware, automobiles, mobile phones, tobacco & alcohol, and media and entertainment industry.
The study found that from 2011-12 to 2013-14, revenue loss to the central government due to illicit trade increased 49.8% to Rs 13,049 crore.
Amongst the various sectors, the maximum revenue loss was from counterfeiting and illicit trade is tobacco products—23% and Rs 9,139 crore.
Among states, Assam saw a significant growth in illicit trade in these sectors in the last couple of years. It was one of the fastest growing markets for illegal cigarettes and alcohol in the country. In 2014, illegal cigarettes accounted for more than 25% of the total cigarette market in the state.
Assam's illegal market for alcohol too grew significantly in value terms, especially for IMFL and imported liquor.
"During the last twenty years, the volume of the counterfeiting activity has increased 100 times and the size of trade in counterfeited goods is 10% of the legal international trade (around 2% of the world's overall economic output)," said PC Jha, adviser, FICCI CASCADE, and former chairman of the Central Board of Excise & Customs.
According to the study, high state-level taxes like VAT and imposition of health cess on the legal cigarette industry is resulting in high prices for legal cigarettes, and this is the key reason for such an alarming growth of illegal cigarette industry in the state.
Most of the manufacturers of such illegal cigarettes (mostly based in the surrounding states and in some northern states) evade the high central excise duty and state taxes/cess and thus are able to offer their products to consumers at rock-bottom prices. Price of an illegal cigarette pack in Assam is a fifth of the price of a legal packet.
The study said smuggled international contraband cigarettes contribute significantly to the alarming growth of the illegal cigarette industry in Assam. Assam shares a porous international border with Bangladesh. In addition, other states in the north-east also share a similar border with Myanmar, Bangladesh and China. Therefore, there is a sizeable influx of cheap king-sized smuggled cigarettes from across the border into Assam.
These smuggled cigarettes are transported from Assam and other north eastern states to the rest of the country by air, bus and train, the report said.
"Such illegal cigarettes defeat the tobacco control objectives of the government as they neither bear any health warnings required as per Indian laws nor have other mandatory declarations like MRP, date of manufacture or place of Manufacture. High VAT compared to the rest of the country and the recent imposition of health cess on cigarettes have also resulted in large-scale diversion of the cigarettes trade into the state," the report pointed out.
The study argued that as a result, cigarette traders (including small-time retailers) of the state have lost their business to international and inter-state smugglers and mafia who are involved in manufacturing of illegal cigarettes. This has also resulted in a loss of state revenue from the cigarette industry by over 50% ever since the VAT rate on cigarettes was increased.