Tobacco cultivators in the states of Karnataka and Andhra Pradesh have raised a serious alarm over a sharp increase in excise duties, stating it could push their already stressed sector to the brink. The recent Central Excise (Amendment) Bill, 2025, has triggered fears of collapsing farmgate prices, reduced legal sales, and a surge in smuggling.
Farmers Betrayed by Sudden Tax Hike
The Federation of Karnataka Virginia Tobacco Growers Associations has led the protest, arguing that the move violates a key government assurance. H G Paramesh, President of the Federation, stated that farmers had accepted the GST reforms based on a clear promise that the transition would be revenue-neutral for tobacco goods. "The sudden and steep hike in excise duty violates that assurance and directly threatens farmer livelihoods," Paramesh emphasized. He warned that higher retail prices will inevitably shrink legal demand, creating massive market uncertainty for growers.
A Sector Under Prolonged Stress
The outcry comes when the flue-cured Virginia (FCV) tobacco sector is already grappling with multiple challenges. Farmer bodies point to falling export earnings, stagnant domestic prices, and continuously rising costs for fertilizers, labor, and transport. Furthermore, regulatory caps have led to shrinking cultivation areas, causing significant job losses across farming and related activities over the past decade.
Farmers also highlighted a long-standing issue of fiscal discrimination. They argue that FCV tobacco, used in cigarettes, is taxed at rates many times higher than tobacco used in bidis and chewing products. This disparity unfairly penalizes farmers who operate within a highly regulated and compliant legal framework.
Risk of Boosting Illicit Trade
The federation issued a stern caution regarding the unintended consequences of excessive taxation. History shows that such hikes often fail to reduce consumption but instead fuel the illegal cigarette market. India already faces a serious smuggling problem, with illicit products holding a significant share of total consumption. A widening price gap between legal and illegal products would primarily benefit foreign producers, harm domestic farmers, and ultimately lead to revenue losses for the national exchequer.
In light of these threats, the Federation of Karnataka Virginia Tobacco Growers Associations has made an urgent appeal to the government. They demand a rollback of the notified excise rates to revenue-neutral levels. They assert that a stable and rational taxation framework is essential not only to sustain farmer incomes and protect employment but also to align economic policy with long-term public health objectives by discouraging smuggling and supporting domestic agriculture.
