Tobacco Institute warns duty hike likely to spur illicit cigarette trade

New Delhi: The Tobacco Institute of India (TII) on Wednesday said it was shocked by the sharp increase in duty announced on December 31, 2025, arguing that it contradicts repeated government assurances that the tax transition would be revenue neutral.

TII said the “massive” hike would cause significant hardship to millions of farmers, MSMEs, retailers and local value chains linked to the tobacco industry, while giving a strong boost to illicit trade and hurting legitimate domestic enterprises. Citing industry estimates, TII said that for every three legal cigarettes sold in India, one smuggled or illicit cigarette is already consumed. It warned that the latest tax increase could further expand illegal activity, depriving the exchequer of revenue and encouraging anti-social elements.

Referring to a study covering 71 countries over 17 years (2005–2022), TII said once illicit trade becomes entrenched, it is difficult to reverse. The study also noted that governments cannot rely solely on enforcement and must consider the impact of taxation and affordability. With India already facing high levels of illicit trade, TII cautioned that the share could rise sharply.

The institute highlighted that cigarettes are among the most heavily taxed products in India. While legal cigarettes account for only about 10 per cent of total tobacco consumption, they contribute nearly 80 per cent of tobacco tax revenues. According to WHO data, cigarette taxes in India, as a share of per capita GDP, are among the highest globally.

TII also pointed to Australia’s experience, where high taxes and stringent regulation have led to an “exploding black market,” prompting lawmakers to seek tax rollbacks. The industry body urged the government to review the calculations behind the hike and reconsider it, warning of severe consequences for over four crore people across the value chain and a major setback to legitimate Indian industry.