In a major enforcement drive, Indian GST authorities have exposed 61 instances of tax evasion linked to illicit tobacco products such as cigarettes and pan masala, totaling Rs 104.38 crore during the April-June quarter of fiscal year 2025. This revelation highlights the persistent challenges in curbing underground trade in high-value items burdened by steep duties.
Beyond GST detections, customs formations and the Directorate of Revenue Intelligence (DRI) have confiscated approximately 3.93 crore cigarette sticks in the initial months of FY25. Data from the DRI indicates a dramatic surge in smuggled cigarette seizures, with volumes jumping over 107% and values increasing more than 110% from 2019-20 to 2023-24. In 2023-24 alone, authorities seized 9.1 crore sticks valued at Rs 179 crore, underscoring the escalating scale of operations often tied to international smuggling routes. Experts estimate that overall seizures by agencies including the DRI, Assam Rifles, and CRPF could surpass Rs 600 crore for FY25, pointing to a revenue leak that hampers government coffers.
High-margin commodities like tobacco, gold, and alcohol face intense taxation, fueling smuggling and evasion tactics. In India, tobacco products attract a base GST rate of 28%, excluding leaves which are taxed at 5% under reverse charge. Additional cesses amplify this: pan masala can incur up to 135% ad valorem cess, while cigarettes endure layered duties that rank among the world's highest. Such rates make legal products less affordable, pushing consumers toward black-market alternatives and causing an estimated Rs 20,000 crore annual tax loss from misbranded cigarettes alone. This illicit activity not only erodes fiscal stability but also supports broader issues like money laundering and even funding for organized crime.
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To combat this, the government has rolled out targeted interventions. Manufacturers of tobacco items must now provide detailed production data within set deadlines under a dedicated compliance framework. The Finance Act 2025 amended the Central Goods and Services Tax Act to enable a robust track-and-trace system for high-risk goods, complete with penalties for non-compliance. Announced in the Union Budget 2025-26, this mechanism aims to monitor supply chains from production to sale, reducing opportunities for counterfeit and smuggled items. Industry stakeholders view it as a vital step to ensure transparency and deter illegal trade, aligning with global protocols like the WHO Framework Convention on Tobacco Control.
Former CBIC chairman and FICCI CASCADE adviser PC Jha noted that elevated taxes on cigarettes lead to substantial revenue shortfalls and strain enforcement resources. He suggested that ongoing GST simplification efforts present a chance to lower rates on these products, diminishing evasion incentives and stabilizing collections. Meanwhile, Think Change Forum Secretary General Ranganath Tannir cautioned that introducing a new 40% GST slab could raise ad valorem duties further, potentially worsening grey markets in tobacco and disrupting revenue flows.
As India grapples with these dynamics, balancing public health goals, tax revenues, and enforcement remains key. Moderating duties while strengthening digital tracking could prove effective in shrinking the shadow economy around tobacco.
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