Tobacco Excise Duty Hike May Hit Farmer Income, Fuel Smuggling: FAIFA

The Federation of All India Farmer Associations has cautioned that the government’s decision to impose additional excise duty on tobacco products could significantly hurt farmer incomes and intensify smuggling in a market already under pressure from illicit trade.

The finance ministry last month notified revised excise duties ranging from Rs 2,050 to Rs 8,500 per 1,000 cigarette sticks, based on length. The new rates are set to take effect from February 1 under the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines Capacity Determination and Collection of Duty Rules, 2026.

Federation of All India Farmer Associations said the move contradicts earlier assurances of revenue neutral tax reform. The association represents tobacco growers across Andhra Pradesh, Telangana, Karnataka, and Gujarat.

Concerns Over Demand and Farmer Livelihoods​

FAIFA stated that a sharp rise in retail prices is likely to reduce legal cigarette consumption, weakening demand for domestically grown tobacco and potentially creating a surplus in the crop market. According to the farmers’ body, this could directly impact livelihoods in regions dependent on Flue Cured Virginia tobacco cultivation.

The association said the latest duty increase places additional strain on an already challenged sector, where legal consumption has been under pressure due to tax driven price increases.

Tax Disparity Between Tobacco Products Highlighted​

FAIFA also flagged what it described as a discriminatory tax structure within the tobacco sector. It said taxation on Flue Cured Virginia tobacco used in cigarettes is more than 50 times higher per kilogram than that on beedis and over 30 times higher than chewing tobacco.

According to the group, FCV tobacco attracts more than Rs 6 in tax per dose in finished products, while beedis and chewing tobacco products face less than one paisa per dose. This disparity, it warned, widens the price gap between legal and illegal products.

India is estimated to be the world’s fourth largest illicit cigarette market, with illegal products accounting for around 26 percent of total consumption, as cited by FAIFA. The organisation said higher taxes could further encourage smuggling, weaken enforcement efforts, and reduce government revenue.

Production, Employment, and Cost Pressures​

FAIFA data shows that FCV tobacco production has remained largely flat over the past decade. Auctioned quantities stood at 304.21 million kilograms in 2023 to 24, compared with 315.95 million kilograms in 2013 to 14.

Cultivation area has declined sharply from 2,21,385 hectares in 2013 to 14 to 1,22,257 hectares in 2020 to 21. This contraction has resulted in an estimated loss of nearly 35 million man days of employment across farming and auction related activities.

Rising input costs have added to the strain. The World Bank fertiliser price index has increased 15 percent since the start of 2025, with di ammonium phosphate prices up 23 percent. Notified agricultural wage rates also rose 7 percent during the 2024 to 25 fiscal year.

Call for Revenue Neutral Tax Structure​

FAIFA has urged the government to reconsider the excise duty hike and adopt a revenue neutral taxation approach. The association said such a framework would help support domestic agriculture while limiting incentives for smuggling and illicit trade in tobacco products.