Additional excise duty on tobacco products will hurt farmers and fuel smuggling: FAIFA

New Delhi: The Federation of All India Farmer Associations (FAIFA) on Friday said the government’s move to levy additional excise duty on tobacco products will hurt farmers’ income and exacerbate smuggling in a market already grappling with illicit trade.

The finance ministry last month notified excise duties of Rs 2,050-8,500 per 1,000 cigarette sticks depending on length, effective February 1, under the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026.

FAIFA said the duty increase contradicts the government’s assurances of revenue-neutral tax reform.

“We are shocked to see that the promise has not been kept, and instead a sharp increase in taxes has been notified, at the cost of farmers’ livelihoods,” FAIFA President Murali Babu said in a statement.

The farmers’ body warned that higher retail prices will reduce legal cigarette consumption, hurting demand for domestically-grown tobacco and potentially creating a glut in the crop market.

TAX DISPARITY

FAIFA also said that India’s tax regime discriminates against Flue-Cured Virginia (FCV) tobacco used in cigarettes, with per-kilogram taxation over 50 times higher than for ‘beedis’ — hand-rolled cigarettes popular among lower-income consumers — and over 30 times higher than chewing tobacco.

FCV tobacco attracts more than Rs 6 in tax per dose in finished products, while beedis and chewing products face less than one paisa per dose, the group said.

India has emerged as the world’s fourth-largest illicit cigarette market, with illegal products accounting for roughly 26 per cent of total consumption, according to industry estimates cited by FAIFA.

The organisation warned that tax-driven price increase will widen the gap between legal and smuggled products, undermining enforcement efforts and reducing government revenue.

SECTOR UNDER PRESSURE

FCV tobacco production has stayed largely flat over the past decade, with auction volumes at 304.21 million kg in 2023-24 versus 315.95 million kg in 2013-14, FAIFA said.

Cultivation area shrank sharply, costing nearly 35 million man-days. Rising fertiliser and wage costs have worsened farmer distress. FAIFA urged a rollback of excise duty and revenue-neutral measures to support domestic growers and curb smuggling.