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To check contraband cigarette sales -- Tobacco industry seeks excise cut

Our Bureau

CALCUTTA, Oct. 29

POINTING to the steadily growing menace of contraband cigarettes bearing the labels of global players such as Philip Morris and BAT (British American Tobacco), domestic tobacco circles aver that the only way out now was to cut excise rates and hike impor t duty on cigarettes.

Citing the dangers of a spurt in smuggling of cigarettes, once the quantitative restrictions go away from April 1, 2001 (as per the WTO accord), industry circles point out that contraband cigarette sales in India were increasing at a rate of 20 per cent per annum, causing an ``unaccounted outflow of precious foreign exchange to the extent of Rs 500 crore annually''.

Customer demand within the country, it is stated, is fuelled by the access to world-class cigarettes at relatively low prices. Tobacco growers' associations have already begun campaigning for a curb on the sale of smuggled cigarettes in India, as it is f eared that this may adversely affect the livelihood of millions of tobacco cultivators in the country.

On a rough estimate, some 3-5 billion sticks sold in India (out of a total sale of 98 billion) are said to be smuggled ones, and the Government reportedly loses close to Rs 2,000 crore in revenues per year on smuggled cigarettes. Incidentally, the cigare tte companies pay around Rs 6,000 crore annually towards excise duties.

Pointing out that smuggling was a direct outcome of increased taxation on tobacco products, a WHO study reveals that a packet of 20s smuggled from Myanmar costs Rs 7 in Mizoram compared to Rs 20 for a packet of 20 comparable size India-made cigarettes.

According to a recent UK-based study, tobacco smuggling was now second only to drugs in terms of consumer spending on illegal activities.

Describing the scale of criminal activity and the Government's alleged failure to deal with it as `breathtaking', the study claims that 16.6 billion black market cigarettes or over 830 million packets were sold in the UK in 1999, averaging over 2 billion pounds in revenue for the smugglers and untaxed profits of 415 million pounds.

And if further profits of 123 million pounds from the 430-million pound illegal sales of hand-rolling tobacco are added, it is not difficult to see why organised crime has moved into this lucrative and relatively risk-free business in a big way, it is po inted out.

Illegal cigarette sales are most prevalent in Italy, Spain, the UK and Germany, and by some estimates, 10 per cent of the market in those countries consists of untaxed contraband.

Citing the global developments aimed at curbing contraband cigarettes, industry sources said there was need to take a leaf out of the book of the Colombian unit of Philip Morris.

The company has planned to introduce cigarettes with security seals as part of an agreement with the Government to drastically downsize the $8-billion Colombian contraband market. As per the agreement, the company will use security seals which will help consumers detect smuggled cigarettes.

Colombian tax officials are on record that such steps would help the department to easily identify the rogue retailers who hawk contrabands, and through them the illegal suppliers. The agreement is said to be part of an overall plan by the Colombian Gove rnment to crack down on smuggling and tax evasion.

Mr Francisco Gomez, President of Philip Morris' Colombian unit, now expects contraband of the company's Marlboro brand to drop by half this year. According to news reports, tobacco smuggling in Colombia during 1999 dropped to 4 billion sticks from 11 bil lion in the previous year.

The Governments of Colombia and Ecuador have both filed civil suits in US courts demanding damages from cigarette companies accused of cooperating with smugglers.