J&K at 40% has the highest VAT in India on cigarettes

Srinagar:Jammu and Kashmir having the highest VAT at 40% on cigarettes as against the national average of 27%, the state is already a breeding ground for illegal cigarettes that are flooding the market. The price difference has also led to smuggling from other states with lower VAT. Goods moving from Chandigarh and Delhi (20%) VAT is not only aiding tax evasion, it is passing economic benefits from Kashmir these states. Moreover, there is a direct impact on the 80,000 lives dependent on the trade.

Previous attempts by various states have proven effectively that high taxation may not necessarily result in high revenue collection. In 2011, Rajasthan taxed cigarettes at a high rate that led to significant decline in the VAT collection. By 2014 Govt. of Rajasthan was forced into conceding that the state was not only losing revenue due to interstate smuggling owing to lower VAT rates in the neighboring states. The illegal cigarette market had grown so significantly that the direct hit was on consumer; cheaper cigarettes led to higher smoking incidences amongst youth and the cost in terms of health of smokers of illegal cigarettes was incalculable.Similar scenario has been faced by other states like MP, Bihar, West Bengal and Tripura who were forced to roll back or moderate with severe decline in the revenue.  

The additional argument provided is that a steep VAT will discourage smoking. “However, studies by reputed bodies like FICCI have proven that higher taxes on cigarettes will shift consumers to low cost illegal cigarettes or other more harmful forms of cheaper tobacco like bidi, khaini etc. This defeats the intent of not only safeguarding public health but also revenue enhancement.  Today over 20% of cigarettes sold in India are illegal – smuggled or tax-evaded manufactured in India”, stated Mr Sunit Narula, General Secretary, of NGO Infinite Achivers, who is currently concentrating on issues like illicit trade in tobacco and liquor industry in India.

Attention has been drawn to influence the Government of Jammu and Kashmir on their decision to increase the VAT on cigarettes to 65%, whereas no other state in India has such high VAT.Currently Kashmir needs all its resources to recover from the devastating flood and grow its economy at a healthy rate, only moderation in Taxes can ensure this growth.



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