Tobacco farmers have suffered Rs 3,300 cr loss in last four years

The Federation of All India Farmer Associations (FAIFA), which claims to represent farmers of commercial crops from various states, including Andhra Pradesh, Telangana, Karnataka and Gujarat, said they are "under extreme duress due to heavy taxation and adverse regulatory environment on the legal cigarette industry".

During the last six years, consumption of domestic Flue Cured Virginia (FCV) tobacco has reduced substantially. The excessive taxation on cigarettes has given a huge boost to smuggled cigarettes, the FAIFA said in a statement.

"This has resulted in drop in earnings of FCV tobacco farmers which have shrunk cumulatively by more than Rs 3,300 crore since 2013-14," it added.

Seeking government intervention, FAIFA President Javare Gowda said,"The latest increase in taxation on account of revision in the compensation cess rates on cigarettes has further increased the tax arbitrage opportunities available and provided an enormous boost to smuggling syndicates further reducing the demand of home grown tobacco."

The association's General Secretary Murali Babu said the huge growth of illicit trade of cigarettes is a reflection of the unintended consequences of steep increases in taxation.

"We appeal to the government to roll back the tax increase to 'revenue neutral levels', consistent with the Government's stated objectives," he said.

Such a move will "help curb illicit trade and increase demand of home grown tobacco, save our livelihood and arrest further loss of employment opportunities", Babu added.

In July this year, the GST Council had raised cess on cigarettes to take away an estimated Rs 5,000 crore annual "windfall" manufacturers could have reaped from lower GST rates. It is pertinent to note that only 3% of the adult population consume cigarettes. Smokeless tobacco products users and bidi smokers outnumber cigarette smokers by 6 times and 3 times respectively.

This has been substantiated by several reports. Cigarettes account for 87% of revenue from tobacco taxation, while the contribution to tax collections from the other two segments is insignificant.