Over Rs 39, 000 crore loss to exchequer in 2014 all thanks to illicit trade!

Illicit market, with respect to seven sectors of the manufacturing industry, had led to a loss of Rs 32,239 crore to the exchequer during 2014, according to a report released by FICCI.

The FICCI report prepared by its Committee Against Smuggling and Counterfeiting Activities Destroying the Economy and titled “Illicit Market: A Threat to Our National Interest” released said the loss was inclusive of both indirect and direct taxes -- Rs 34,020 crore and Rs 5,218 crore, respectively.

According to the report, there was a loss of Rs 26,190 crore in 2012.

FICCI released its nine sector report titled 'Illicit Market: A Threat to Our National Interest' in Guwahati on Tuesday. This is a quantitative study evaluating the impact of illicit markets on various economic aspects of the manufacturing industry, including sectors like FMCG, packaged foods and personal goods, computer hardware, automobiles, mobile phones, tobacco & alcohol, and media and entertainment industry.

The study found that the revenue loss to the central government due to illicit trade increased 49.8% to Rs 13,049 crore from 2011-12 to 2013-14.

Amongst the various sectors, the maximum revenue loss was from counterfeiting and illicit trade is tobacco products—23% and Rs 9,139 crore.

When it comes to states, Assam saw a significant growth in illicit trade in these sectors in the last couple of years. It was one of the fastest growing markets for illegal cigarettes and alcohol in the country.

In 2014, illegal cigarettes accounted for more than 25% of the total cigarette market in the state.

Assam's illegal market for alcohol too grew significantly in value terms, especially for IMFL and imported liquor.

"During the last twenty years, the volume of the counterfeiting activity has increased 100 times and the size of trade in counterfeited goods is 10% of the legal international trade (around 2% of the world's overall economic output)," said PC Jha, adviser, FICCI CASCADE, and former chairman of the Central Board of Excise & Customs.

Deep Chand, advisor to FICCI CASCADE and former Special Commissioner of Police, New Delhi, said: "In the past few decades, leading intelligence and law-enforcement agencies around the world have found conclusive evidence of the increasing involvement of terrorist organizations in counterfeiting, piracy and smuggling activities to fund their activities…The need of the hour is tangible actions to increase enforcement and to impose increased punishments."

The study said that high state-level taxes like VAT and imposition of health cess on the legal cigarette industry is resulting in high prices for legal cigarettes, and this is the key reason for such an alarming growth of illegal cigarette industry in the state.

Most of the manufacturers of such illegal cigarettes (mostly based in the surrounding states and in some northern states) evade the high central excise duty and state taxes/cess and thus are able to offer their products to consumers at rock-bottom prices. Price of an illegal cigarette pack in Assam is a fifth of the price of a legal packet.

According to the study, smuggled international contraband cigarettes contribute significantly to the alarming growth of the illegal cigarette industry in Assam. Assam shares a porous international border with Bangladesh. In addition, other states in the north-east also share a similar border with Myanmar, Bangladesh and China. Therefore, there is a sizeable influx of cheap king-sized smuggled cigarettes from across the border into Assam.

These smuggled cigarettes are transported from Assam and other north eastern states to the rest of the country by air, bus and train, the report said.

"Such illegal cigarettes defeat the tobacco control objectives of the government 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. High VAT compared to the rest of the country and the recent imposition of health cess on cigarettes have also resulted in large-scale diversion of the cigarettes trade into the state," the report pointed out.

(Image: Indiatimes)