Patna,(BiharTimes): Deputy Chief Minister-cum- Finance Minister, Sushil Kumar Modi, said on Tuesday that while smuggling has shown sign of decline after liberalization, the problem of counterfeiting has increased. State governments have no mechanism to check this growing menace and there is an urgent need for better policy to check counterfeiting.
Address the FICCI-CASCADE (Committee Against Smuggling and Counterfeiting Activities Destroying the Economy) seminar in Patna on ‘Curbing Counterfeiting and Smuggling—An imperative for Indian Economy’ he highlighted the key role that technology is playing in curbing tax evasion in Bihar. He was delivering the special
The seminar focused on the growing link between smuggling, counterfeiting and crime. Modi said that 30 per cent of Indian economy is run on black money and technology should be used to check this. He stated that large tax evasion had been detected by use of technology.
Talking about how small shopkeepers do not issue bills, he emphasized that use of technology could check this practice.
With special focus on Bihar the seminar highlighted the problems faced by the state due to the grey/illicit market, causing huge losses to the state exchequer.
The seminar also highlighted problems faced by local traders due to counterfeiting. According to the FICCI study on “Socio-economic Impact of Counterfeiting, Smuggling and Tax evasion in seven key Industry Sectors” the estimated annual Tax loss to government in the year 2012 is estimated at Rs 26,190 crores. The study further estimates an annual sales loss to industry at a whopping Rs 1,00,000 crores. The key sectors, which were included in the study were Auto Components, Alcohol, Computer Hardware, FMCG (Personal Goods), FMCG Packaged Goods), Mobile Phones and Tobacco. The highest loss to industry in terms of revenue is from FMCG (Packaged Goods) at Rs. 20,378 crores (23.4%), FMCG (Personal Goods) at Rs. 15,035 crores (25.9%), Auto Components at Rs 9,198 crores (29.6%), Mobile Phones at Rs 9,042 crores (20.8%) and Tobacco at Rs 8,965 crores (15.7%). The maximum tax loss on account of smuggled and counterfeit products to the government is from the Tobacco Sector at Rs 6,240 crores followed by FMCG (Packaged food) at Rs 5,660 crores and FMCG (Personal Goods) at Rs. 4,646 crores.The study also reconfirms government estimates of 5% of medicines in the market being fake that have a direct impact on the health and safety of consumers.
Speaking on the occasion P C Jha, Adviser FICCI CASCADE emphasized in the seminar that an increase in excise and VAT rates will not curtail consumption of products such as alcohol and tobacco instead it will lead to incentivising smuggling and counterfeiting therefore causing heavy losses to the ex-chequer. This is only a myth that high rate of tax can reduce consumption of sin products and discourage purchase of such goods. On the contrary this gives rise to unscrupulous and anti-social elements in society creating a major security threat to the nation. Thus tax arbitrage creates opportunity for smuggling and counterfeiting. Policy makers should ensure that there is moderation in taxation so that we create a climate of win-win for government, industry and consumer.
Several steps are being taken by FICCI CASCADE and the government to create large-scale awareness among the most impacted segment of this menace: the consumer. The seminar on ‘Curbing Counterfeiting and Smuggling—An Imperative for Indian Economy’ has been organised in a series of such events to be organised across the country as part of a nation-wide awareness campaign to highlight the issue and focus on the growing menace of Counterfeit and Smuggling.
Deep Chand, Advisor FICCI CASCADE also concluded the panel discussion on enforcement on the note that enforcement actions have a limited role in tackling this menace. Right policy framework drawing on taxation and other linked issues can ensure we handle this menace effectively.
The interactive session in the seminar brought out the fact that tobacco sector continues to account for the highest revenue to tax percentage loss to the government at over 60%. Bihar has emerged as a hotbed of the illegal cigarettes trade in India. The state represents one of the largest market for illegal cigarettes in the country. While these locally manufactured, tax-evading cigarettes have a 20% share of the cigarette market and are continuously growing in Bihar. It is an alarmingly large and well-organized business: with some of India’s largest manufacturers of illegal cigarettes based in Bihar. Over 40 million illegal sticks are sold in the state every month.
Consequently, the state government suffers an annual tax loss of about Rs 75 crore.In Bihar, the State level Taxes on cigarettes are currently at 20% (VAT), which is much higher than the VAT of 12.5% introduced across all states in 2007. Hence tax evasion on cigarettes becomes an inviting proposition in the State. High taxation on cigarettes in India is the key reason for the large and growing market of illegal/tax-evaded cigarettes. Despite accounting for only 15% share of total tobacco consumption, cigarettes generate over 75% of the tax revenue from tobacco.
According to the Euromonitor report on Illicit Trade in Tobacco Products, India is the fastest growing and is already world’s sixth largest market for illicit cigarettes.
As per Global Adult Tobacco Survey, only 5.9% adults smoke cigarettes in Bihar, whereas Bidi is smoked by 8.4% adults and smokeless tobacco is consumed by 48.7% adults, (much higher than All India average of 25.9% adults, who may fall prey to cheap illicit cigarettes). Though it continues to be treated as an economic offense, several international studies and reports point towards the nexus between cigarette/tobacco smuggling and funding of criminal syndicates. Cigarette smuggling has now become a major security concern for many countries because criminal cartels are turning to this illicit trade to increasingly finance their criminal activities, according to a study done by a global non-profit tax research foundation.
Citing findings by the US Department of Justice Bureau of Alcohol, Firearms and Tobacco (ATF), the International Tax and Investment Center (ITIC) reported that “organized criminal groups, including those with ties to terrorist organizations, are engaged in illegal trafficking of alcohol and tobacco products, including counterfeit tobacco products.”