Union Finance Minister Sitharaman assures to review tax hike on unmanufactured tobacco

Union Finance Minister Nirmala Sitharaman has assured to review the recent hike in tobacco tax, according to Rajamahendravaram MP Daggubati Purandeswari.

A delegation of Flue-Cured Virginia (FCV) tobacco farmers from Andhra Pradesh, Telangana and Karnataka, led by Ms. Purandeswari, on Thursday met Ms. Sitharaman in New Delhi seeking a review of the tobacco tax hike, citing its adverse impact on farmers and regulated FCV tobacco ecosystem.

The delegation, which also included Tobacco Board Chairman Yashwanth Kumar Chidipothu, expressed concern that the sudden increase in tax could severely affect the livelihoods of lakhs of farming families and disrupt the auction-based regulated marketing system.

Ms. Purandeswari later told The Hindu that the newly introduced 18% tax on unmanufactured tobacco would directly be a burden on the farmers. She observed that the international FCV tobacco production increased, hence there would be normal demand at global markets for India’s produce. That would impact the local market as well, she added.

Stating that the new tax could lead to a decline in legal trade, revenue loss to the government and a rise in illicit trade, the delegation stressed the need to protect domestic industry and low-grade tobacco usage to sustain farmer incomes.

They said that illegal cigarettes had been entering the country, which would effectively damage the domestic market.

Mr. Yashwanth Kumar explained that the notified rates effective February 1 would raise tax incidence on legal cigarettes by about 73%, potentially weakening buyer participation, auction competitiveness and trade confidence.

Farmers from Andhra Pradesh and Telangana said auctions were set to begin next month, and they feared sharp price declines and unsold stocks.

Karnataka farmers reported a 10% drop in auction prices and cautioned that the 18% tax on unmanufactured tobacco could further deter traders.

Responding to the concerns, the Finance Minister assured the delegation that the government would review the issues and consider their impact, reiterating that the tax measures were intended to remain revenue-neutral and not to generate additional revenue from the tobacco sector.

Ms. Purandeswari said that the tax decision had been taken by the Group of Ministers, and hence the Finance Minister assured to bring the matter to the notice of the GoM.