Illicit market in just seven select manufacturing sectors including FMCG, packaged foods, tobacco, alcohol and mobile phones had led to a loss to the nation to the tune of Rs 32,239 crore during 2014, a report released by FICCI said on Tuesday.
The FICCI report prepared by its Committee Against Smuggling and Counterfeiting Activities Destroying the Economy and titled “Illicit Market: A Threat to Our National Interest” released here said the loss was inclusive of both direct and indirect taxes, with the indirect taxes component working out to a whopping Rs 34,020 crore.
While counterfeiting and illicit trade in tobacco products accounted for the maximum revenue loss – nearly 23 per cent of the total loss which works out to about Rs 9139 crore, mobile phones accounted for 17 per cent (Rs 6705 crore), alcohol 16 per cent (Rs 6309 crore), and FMCG packaged food also about 16 per cent (Rs 6096 crore), the report said.
The study also revealed that during the course of two years from 2011-12 to 2013-14, revenue loss to the government had grown exponentially by Rs. 13,049 crores, an increase by 49.8 per cent.
Assam, the report said, has seen a significant growth in illicit trade among these sectors in the last couple of years with the state emerging as one of the fastest growing markets for illegal cigarettes and alcohol in the entire country. Assam’s illegal cigarette industry is estimated at more than 25 per cent of the total cigarette market in the state.
“While the supply of legal cigarettes showed a decline, the illegal players have taken over this market which is growing at a higher rate. In case of alcohol, the illegal market has also grown significantly in Assam in value and is much higher in quantity especially for IMFL and imported liquor,” it said.
The study also said that there was a relationship between high taxes and availability of illicit products. “High tax rates tend to exacerbate illicit markets by creating greater demand for cheap, tax-evaded and counterfeit substitutes. A significant reason for this being that high tariffs and taxes create opportunities for those involved in illicit markets to step in and supply ‘reduced’ versions of the original product at lower prices,” it said, pointing out it was particularly true for the tobacco and alcohol Industry.
“These industries (tobacco and alcohol) are not only highly taxed; the tax structure is highly complex in nature. Besides, there are considerable differences in tax rates between states which open up opportunities for illegal cross-border trade,” it said.
The FICCI report also pointed out that smuggled international contraband cigarettes were another big menace contributing significantly to the alarming growth of illegal cigarette industry in Assam and the Northeastern region.
While Assam shares a porous international border with Bangladesh, other Northeastern states too share similar borders with Myanmar, Bangladesh and China. “There is a sizable influx of cheap king-sized smuggled cigarettes from countries like Bangladesh, China and Myanmar into Assam. The Northeast has thus become a distribution centre for the rest of the country for such cheap smuggled cigarettes originating in the neighbouring countries,” it said.
“As bulk of these smuggled cigarettes are transported from Assam and other Northeastern states to rest of the country by various modes of transport, such illegal cigarettes totally defeat the tobacco control objectives of the government as they neither bear any health warnings required under Indian laws, nor do they have other mandatory declarations like MRP, as well as date and place of manufacture,” the FICCI report said.
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