BJP Leader Sounds Alarm Over Tobacco Tax Hike Impact
GUNTUR: Senior BJP leader and Indian Tobacco Board chairman Yashwanth Kumar Chidipothu has issued a stark warning about the government's recent decision to sharply increase GST on tobacco products. He calls the move unprecedented and predicts severe consequences for farmers, the industry, and government revenue.
Mid-Season Tax Shock Disrupts Farming Cycle
In an exclusive interview, Chidipothu explains why this tax hike differs from ordinary adjustments. The government reintroduced excise duty during the middle of the production season, breaking earlier promises of revenue neutrality. Tax rates have jumped to two or three times above neutral levels, with some cigarette segments seeing 70-80% higher taxes per unit.
"Farmers had already planted, harvested, and brought their crops to auction when these increases hit," Chidipothu states. "Such timing creates maximum damage to agricultural value chains."
Public Health Goals Undermined by Illegal Trade
While acknowledging public health concerns, the BJP leader argues steep taxes backfire. Consumers simply switch to cheaper illegal alternatives when legal cigarettes become unaffordable overnight. Smuggled and tax-evaded cigarettes lack quality controls, health warnings, and contribute nothing to government coffers.
"This undermines both health objectives and national revenue," he emphasizes.
India's Growing Illicit Cigarette Market
Chidipothu presents concrete evidence of the problem. India now ranks as the world's fourth-largest market for illicit cigarette consumption, trailing only China, Brazil, and Pakistan. Illegal cigarettes account for nearly 30% of total consumption, causing estimated annual revenue losses of ₹13,000 crore.
The price gap illustrates the issue clearly. After recent tax changes, legal cigarette packs cost around ₹340 while smuggled versions sell for as little as ₹50. Revenue Intelligence has reported seizures worth over ₹600 crore, yet large quantities remain in circulation.
Farmers Bear Immediate Brunt
Tobacco farmers suffer first and hardest from these policies. Unlike quick-turnaround crops, tobacco requires months of regulated cultivation. Once planted, farmers cannot easily switch. When demand falls and exports weaken, they face unsold stock and falling prices.
Chidipothu recalls the 2014 tax increase that caused severe farmer distress, including reported suicides. The government eventually provided compensation of ₹20 per kg.
Why Crop Switching Isn't Simple
Most FCV tobacco farmers in Andhra Pradesh and Karnataka operate small, rain-fed plots. Tobacco grows only in specific soil and climate conditions with established infrastructure. Alternative crops like Bengal gram, Ragi, and Ginger cannot match tobacco's income potential, and lack guaranteed large-scale markets.
"Suddenly forcing farmers to switch without income security increases rural hardship," Chidipothu warns. "Mass switching could cause overproduction and make alternative crops unsustainable."
Historical Principle Reversed
India has traditionally treated unmanufactured tobacco leaf as agricultural produce exempt from farm-level taxation. Finance Minister Chaudhary Charan Singh removed excise duty in 1979 based on this principle. The current 18% duty reversal lowers leaf prices and reduces farmer income in major tobacco-growing states.
"Past experience shows taxing unmanufactured tobacco hurts farmers without generating stable revenue," Chidipothu notes.
Urgent Call for Policy Correction
Without timely intervention, Chidipothu predicts continued growth of illegal markets, reduced farm-gate prices, worsening rural distress, and significant government revenue losses.
His immediate request: conduct thorough impact assessments before implementing changes, restore revenue-neutral tax rates, strengthen measures against illicit trade, and hold structured consultations with the Tobacco Board, farmer representatives, and industry stakeholders.
"We need balanced, sustainable policies that protect farmer livelihoods while supporting national revenue and public health," he concludes.
