According to a report titled “New Tax Regime on Cigarettes and Its Impact,” prepared by FAIFA in collaboration with Artha Arbitrage Consulting LLP, the higher taxes are expected to reduce FCV tobacco offtake by nearly 20%, leading to an estimated annual loss of 2.6 million man-days of employment across farming, warehousing, auctioning, and transportation activities. The report cautions that small and marginal farmers, agricultural labourers, and women workers would be the worst affected.
Murali Babu, President of FAIFA, said the tax disproportionately impacts FCV growers in South India. He noted that farmers’ share in the overall tobacco market has already declined sharply from 21% to 10% due to rising taxes and expanding illegal trade. Further increases could make cultivation economically unsustainable.
The report argues that higher prices may not reduce consumption but instead push price-sensitive consumers toward cheaper, illegal cigarettes. Illicit trade is projected to grow by nearly 39%, with illegal consumption potentially exceeding 46 billion sticks. This could erode government revenues while benefiting unregulated and foreign producers.
Data shows that FCV cultivation has already been shrinking, with planted area falling from 258.23 thousand hectares in 2011–12 to 146.54 thousand hectares in 2023–24. Following previous tax hikes, farm-gate prices dropped by ₹20–30 per kg; the latest increase could trigger declines of ₹60–70 per kg, making it difficult for farmers to recover costs.
The report also highlights structural tax asymmetry, noting that FCV-based products are taxed 30–50 times higher per kilogram than bidis or chewing tobacco. With GST now linked to retail sale prices and raised to 40%, the overall tax burden has increased further due to cascading effects.
FAIFA has urged the government to review the policy, warning that without corrective measures, the socio-economic damage to millions of farmers and workers could be long-term and irreversible.
