Tax Hike Backfires : Cigarette Smuggling Soars , Legal Sales Hit Hard

freepressjournal.in · Feb 16, 2026 · Collected from GDELT

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Chennai: The Union government’s plan to tax smokers by making cigarettes costlier by Rs 2-5 per stick with an additional excise levy of 40% is likely to boost the smuggling of misbranded and foreign cancer sticks from south-east Asian countries, a trend already on the rise in the last five years. Senior officials in the Central Board of Indirect Taxes and Customs (CBIC) said that the February 1 hike in taxes for cigarettes, which already constitute around 70-75% of retail prices, makes evasion and hence the black market an extremely lucrative trade for organized syndicates operating it. This not only negates the government’s intention to dent smoking as a habit, but also causes losses in several thousand crores in legal tax revenue, officials said. Latest official data of the Directorate of Revenue Intelligence (DRI) shows that their seizures of smuggled cigarettes went up by 82% from 5.14 crore sticks in 2019-20 to 9.4 crore sticks in 2024-25. These are only a fraction of the total allIndia seizures, as sister agency Customs and other enforcers like Assam Rifles have also foiled multiple smuggling bids through the land, sea, and air borders. An accepted thumb rule in CBIC is that only 10% of the smuggled goods are stopped, which is an indication of the size of the growing illicit trade. DRI identifies India as a key destination and transit hub for these illegal tobacco products and that it poses serious challenges to public health, economy and law enforcement. Two kinds of cigarettes are smuggled into India. The first is a rip-off of Indian brands like Gold Flake, which industry experts say contains substandard quality of tobacco grown abroad. These can be easily identified as the boxes contain wrong or no health warnings mandated by the Indian government. The second is foreign cigarettes like Mond,Manchester, ESSE, Benson & Hedges, Gudang Garam, etc, which are popular among Indian smokers, but can be legally imported only after paying a massive duty and complying with warning labels specified by the Indian government. The cigarettes are smuggled from southeast Asia through Myanmar (land), Middle Eastern Free Trade Zones and maritime containers (sea), and air cargo and passengers (air). In October-December 2025 alone, DRI alone seized at least 2 crore smuggled cigarette sticks from various parts of Northeast India. In November, Chennai Customs arrested a gang which smuggled 647 cartons of Mond brand cigarettes worth Rs 12.94 crore from Dubai; sleuths found that a cityresident had used the Import-Export Code (IEC) credentials of a Bengaluru-based trader for the smuggling bid. Around six months ago, 92 lakh cigarettes worth Rs 18.2 crore were seized by DRI at the city’s Kattupalli port in a container from Dubai, declared to have ‘bathroom and sanitary fittings’. DRI says that smugglers “exploit the sheer scale of containerized shipments arriving at seaports to conceal foreign-origin cigarettes within legitimate consignments.” Shipments are falsely declared to avoid detection by automated risk-profiling systems, the agency noted in its latest report. The agency has also intercepted several trucks carrying foreign-origin cigarettes in Bihar and Uttar Pradesh. DRI’s latest analysis indicates the port of origin of these consignments to be UAE (30%), Singapore (27%), Vietnam (24%) and Thailand (19%). When asked what makes this trade so lucrative, senior CBIC officials say the devil is in the tax detail. Their back-of-the-envelope calculations show that a fake Indian brand cigarette manufactured in Vietnam or Cambodia costs only around Rs 4 per stick, while it is sold at Rs 15 per stick in Indian paan shops, at least Rs 3-5 cheaper than the original, heavily-taxed Made-in-India cigarette. Even after accounting for shipping costs and other overheads, the smuggling syndicate earns a cool profit of Rs 8-10 per stick, the senior officials said. This profit is now set to swell with the additional tax levy from February 1. The massive profits are opportune for smugglers hit by lower margins in the gold trade, a Customs investigator said. This trend has worried Indian manufacturers as they must compete with cheaper rip-offs of their own products. Around 14 months ago, market leader Indian Tobacco Company (ITC) wrote to the Union Finance Ministry, flagging an annual Rs 21,000 crore tax loss due to this smuggling and highlighting its impact on Indian tobacco farmers. The letter was later sent as an alert to DRI and Customs formations across the country to tighten up vigil. A senior CBIC official noted on a grim note that the primary reason for this trade to continue flourishing is that nicotine addiction makes consumption relatively inelastic. “When legal prices rise, consumers don’t quit immediately. They will obviously gravitate towards cheaper cigarettes sold informally in local markets,” the officer said.