NEW DELHI: The Tobacco Institute of India (TII) on Thursday expressed shock over what it termed an “unprecedented” increase in duty announced on December 31, 2025, stating that the move contradicts the government’s repeated assurances that the transition of taxes would be revenue-neutral.
In a media statement, TII warned that the sharp hike would inflict severe hardship on millions of farmers, Micro, Small and Medium Enterprises (MSMEs), retailers, and local value chains linked to the tobacco sector. The institute also cautioned that the increase could significantly boost illicit trade, leading to revenue losses for the national exchequer and encouraging antisocial activities.
Highlighting the extent of illegal trade, TII noted that for every three legal cigarettes sold in India, one smuggled or illicit cigarette already finds its way into the market. It said the latest tax increase would further exacerbate the problem, undermining legitimate businesses.
Citing a study covering 71 countries over 17 years (2005–2022), TII said that once illicit trade becomes entrenched, it is difficult to reverse.
The study also observed that governments cannot rely solely on enforcement measures while ignoring the impact of taxation and affordability. According to the TII, India already has a high incidence of illicit trade, which is likely to rise further following the duty hike.
The institute pointed out that cigarettes are among the most heavily taxed products in the country. While legal cigarettes account for only about 10 per cent of total tobacco consumption, they contribute nearly 80 per cent of total tobacco tax revenue. It added that cigarette taxes in India, as a percentage of per capita GDP, are among the highest globally, according to World Health Organisation (WHO) data.
Referring to international experience, the TII cited Australia as an example where high taxation and stringent regulations have reportedly led to an “exploding black market” and growing criminalisation of the trade.
It said lawmakers there are now calling for a rollback of taxes to encourage consumers to return to legitimate channels.
Urging a relook at the policy, the TII appealed to the government to review the calculations behind the duty increase and reconsider the magnitude of the hike.
The institute said the move could have a “debilitating and crippling” impact on the entire value chain involving more than four crore farmers, MSMEs and retailers, while dealing a severe blow to legitimate Indian industry and promoting illicit trade.
Agencies