Counterfeiting, Illicit trade causing over Rs 22,000 crore loss per year

Correspondent, Ahmedabad

A report issued by FICCI CASCADE (Committee Against Smuggling and Counterfeiting Activities Destroying the Economy), here today said that the illicit trade in tobacco products, mobile phones and alcoholic beverages was causing a loss to the tune of over Rs 22 thousand crore annually to the government exchequer.

Of this, illicit tobacco products trade share was Rs 9139 crore, mobile phones – Rs 6705 crore, and alcoholic beverages was Rs 6309 crore.

The report unveiled here today also said the state of Gujarat has seen a significant growth in illicit trade in the last couple of years. It has become one of the fastest growing markets for illegal cigarettes and auto components in the country. The supply of legal cigarettes shows a decline, the illegal players have taken over this market and is growing at a higher rate.

The report titled – ‘Illicit Market: A Threat to Our National Interest’ is a study by the committee of the leading industry body evaluating the impact of illicit markets on various economic aspects in the Manufacturing Industry including sectors like FMCG Packaged Foods and Personal Goods, Computer Hardware, Automobiles, Mobile Phones, Tobacco & Alcohol, and secondly – the Media and Entertainment Industry including the Broadcasting and Motion Pictures sectors.

As per the report, the total loss to the government estimated for 2014, on account of the illicit markets in respect of the seven sectors in manufacturing industry is Rs 39,239 crores, up from Rs 26,190 crores in 2012. The loss is inclusive of both indirect and direct taxes — the indirect taxes component is Rs. 34,020 crore and direct taxes is Rs. 5,218 crore.

The study has also discovered that during the course of two years from 2011-12 to 2013-14, revenue loss to the Government has grown-up exponentially by Rs. 13,049 crores, an increase by 49.8%. Amongst the various sectors, the maximum revenue loss to the exchequer on account of counterfeiting and illicit trade is attributed to tobacco products at 23%, estimating a revenue loss of Rs. 9139 crores.

The study also establishes a relationship between high taxes and availability of illicit products.

High tax rates tend to exacerbate illicit markets by creating greater demand for cheap 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. This is true for the tobacco and alcohol Industry. These industries 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.

With regard to Gujarat it says that the state has seen a significant growth in illicit trade. The illegal cigarette market in the State has been growing fast. High VAT(Value Added Tax) on legal cigarette industry, resulting in high prices for legal cigarettes, is the key reason for such an impressive growth of illegal cigarette industry in the State.

Most of the manufacturers of such illegal cigarettes(based in Gujarat and in some neighbouring States) evade the high Central Excise Duty and State VAT and thus are able to offer their products to consumers at rock-bottom prices.

Price of an illegal cigarette pack in Gujarat is at one fifth of the price of a legal packet which makes it very attractive to consumers, particularly youth and rural population. As a result, the domestic manufacturers of legal cigarettes are at great disadvantage on prices with such illegal cigarettes which find great favors amongst consumers, particularly in semi urban and rural areas. Smuggled international contraband cigarettes are another big menace contributing significantly to the alarming growth of illegal cigarettes in Gujarat.

The fact that Gujarat has a number of ports and an international airport are big reasons for large scale smuggling of contraband cigarettes in to the State.Recently there have been a number of seizures of smuggled cigarettes by the Govt. authorities in Gujarat.Illegal cigarettes (domestic tax-evaded plus smuggled contraband) are willingly pushed by the trade because of high trade margins on account of evasion of all kind of duties including Excise and State level VAT. Such illegal cigarettes totally defeat the tobacco control objectives of the Govt. 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, the report says.

– DeshGujarat