Tobacco Institute Warns Cigarette Duty Hike Could Boost Illicit Trade
Industry body says “unprecedented” tax increase contradicts revenue neutral assurances, warns of loss to exchequer and legitimate industry
India, Dec 02 : The Tobacco Institute of India (TII) on Thursday criticised what it described as an “unprecedented” increase in cigarette duty announced on December 31, 2025, warning that the move could significantly expand illicit trade while inflicting severe damage on farmers, MSMEs, and the broader tobacco value chain.
In a statement, the industry body said the sharp hike contradicts repeated government assurances that the transition in tobacco taxation would be revenue-neutral. TII cautioned that higher duties could push consumers toward illegal and smuggled cigarettes, ultimately eroding government revenues and fuelling antisocial activities.
Highlighting the scale of the problem, the institute said that for every three legal cigarettes sold in India, one illicit cigarette already enters the market. It warned that the latest duty increase would further exacerbate illegal trade, undermining legitimate manufacturers, retailers, and supply chains.
Citing a study analysing data from 71 countries over 17 years (2005–2022), TII said once illicit trade becomes entrenched, it is extremely difficult to reverse. The study also found that enforcement alone is insufficient if taxation policies significantly affect affordability.
According to the institute, India already faces a high incidence of illicit cigarette trade, a situation likely to worsen following the latest duty hike.
TII also pointed out that cigarettes are among the most heavily taxed products in the country. While legal cigarettes account for only around 10 per cent of total tobacco consumption, they contribute nearly 80 per cent of total tobacco tax revenues. Citing World Health Organisation (WHO) data, the institute said cigarette taxes in India, measured as a percentage of per capita GDP, rank among the highest globally.
Referring to international experience, TII cited Australia, where steep tax increases and stringent regulations have reportedly led to a surge in black-market activity and growing criminalisation of the trade. It noted that lawmakers there are now calling for a rollback of taxes to encourage consumers to return to legal channels.
Urging a policy review, the institute appealed to the government to re-examine the calculations underlying the duty hike and reconsider its scale. TII warned that the increase could have a “debilitating and crippling” impact on an ecosystem involving more than four crore farmers, MSMEs, and retailers, while delivering a severe blow to legitimate Indian industry and accelerating illicit trade.
