Indian Tobacco Association Halts Auction Participation in Guntur Over Tax Concerns
In a significant development that threatens to disrupt the ongoing tobacco auction season in Andhra Pradesh, the Indian Tobacco Association (ITA) has announced an immediate suspension of participation in tobacco auctions. This decision, taken at a general body meeting of the association, comes as a direct response to the recent imposition of a central excise duty at 18% and goods and services tax (GST) ranging between 28% and 40% on unmanufactured tobacco.
Unprecedented Tax Burden Creates Widespread Uncertainty
The ITA, which represents tobacco traders, exporters, and cigarette manufacturers, has described the cumulative tax burden as unprecedented in the industry's history. According to association leaders, this sudden levy has created severe financial stress for buyers, making it virtually impossible to accurately assess procurement costs and participate meaningfully in the auction process.
"The lack of clarity on tax applicability, valuation norms, and compliance mechanisms has left us with no option but to step back from the auctions," stated ITA honorary secretary YA Chowdary. He emphasized that the decision was not taken lightly, as auction participation is critical for both the trade and farmers who depend on these transactions for their livelihoods.
Cascading Impact on Tobacco Value Chain
The suspension of auction participation is expected to have a cascading impact across the entire tobacco value chain:
- Tobacco growers facing potential price crashes and delayed payments
- Auction platforms experiencing operational disruptions
- Traders and exporters grappling with financial uncertainty
- Rural livelihoods across major tobacco-growing regions at risk
Chowdary highlighted additional operational difficulties, noting that "buyers are also required to move the tobacco already purchased at auctions on or before January 31, before the proposed tax measures come into force, which adds to the uncertainty."
Temporary But Unavoidable Measure
The association has described the suspension as a "temporary but unavoidable measure" aimed at protecting the industry from potential financial losses. ITA members will be constrained to stay away from tobacco auction purchases until the issues are resolved and clear directions are issued by the concerned authorities.
Industry sources have pointed out that unmanufactured tobacco was traditionally treated differently from finished tobacco products. The new tax regime, they argue, blurs this distinction and places a disproportionate burden on the primary segment of the sector.
Government Engagement and Future Outlook
The ITA has already taken up the matter with the central government, submitting representations to both the Union finance and commerce ministers. The association has urged the Centre to reconsider and withdraw the proposed taxes on unmanufactured tobacco, warning of severe adverse consequences for all stakeholders linked to the tobacco economy.
Grower representatives have expressed deep concern that the suspension of trade participation could stall auctions and delay payments, potentially devastating rural communities that depend on tobacco cultivation. The ITA has reiterated its willingness to resume auction participation once the government issues clear guidelines and rationalizes the tax structure to ensure the smooth functioning of the tobacco market.
The association remains committed to finding a solution that safeguards the interests of all stakeholders in the value chain, from farmers to manufacturers, while maintaining the viability of India's tobacco industry during this crucial auction season.
