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Farmers' body FAIFA on Thursday asked the government to roll back hike in compensation cess on cigarettes to revenue neutral rates saying tobacco farmers have suffered Rs 3,300-crore loss in the last four years. The Federation of All India Farmer Associations (FAIFA), which claims to represent farmers of commercial crops from various states, including Andhra Pradesh, Telangana, Karnataka and Gujarat, said they are "under extreme duress due to heavy taxation and adverse regulatory environment on the legal cigarette industry". During the last six years, consumption of domestic Flue Cured Virginia (FCV) tobacco has reduced substantially.
The excessive taxation on cigarettes has given a huge boost to smuggled cigarettes, the FAIFA said in a statement. "This has resulted in drop in earnings of FCV tobacco farmers which have shrunk cumulatively by more than Rs 3,300 crore since 2013-14," it added. Seeking government intervention, FAIFA President Javare Gowda said,"The latest increase in taxation on account of revision in the compensation cess rates on cigarettes has further increased the tax arbitrage opportunities available and provided an enormous boost to smuggling syndicates further reducing the demand of homegrown tobacco." The association's General Secretary Murali Babu said the huge growth of illicit trade of cigarettes is a reflection of the unintended consequences of steep increases in taxation. "We appeal to the government to roll back the tax increase to 'revenue neutral levels', consistent with the Governments stated objectives," he said. Such a move will "help curb illicit trade and increase demand for homegrown tobacco, save our livelihood and arrest the further loss of employment opportunities", Babu added. In July this year, the GST Council had raised cess on cigarettes to take away an estimated Rs 5,000 crore annual "windfall" manufacturers could have reaped from lower GST rates.