In a bid to discourage illegitimate sale of cigarettes, the Associated Chambers of Commerce and Industry of India (ASSOCHAM) has sought a common VAT rate of 12.5 per cent on the product in Gujarat.
According to ASSOCHAM Gujarat, the state government Gujarat has hiked VAT on cigarettes to 25 per cent in spite of the recommendations of Empowered Committee of all State Finance Ministers in January 2005 to maintain a general VAT rate of 12.5 per cent on cigarettes, common for all the states.
"This trend of divergence in VAT rates will lead to large-scale smuggling, evasion of taxes and other criminal activities," said DS Rawat, national ASSOCHAM, National Secretary General, DS Rawat in a letter to Chief Minister of Gujarat, Narendra Modi.
ASSOCHAM has recommended a uniform VAT rate on cigarettes that would encourage legitimate sales of cigarettes thereby increasing revenue of the state government. "It will also be consistent with principles of VAT and proposed GST regime. Besides, it will also prevent migration to cheap and revenue in-efficient miscellaneous tobacco products contributing to social objectives of tobacco control and public health," added Rawat.
The industry body has opined that disparity in rates of VAT is bound to distort the market leading to illegal activities like smuggling, evasion of taxes giving rise to other criminal activities bearing serious repercussions like entry of organized crime syndicates.
Moreover, illegal cigarettes trade accounts for 16 per cent of the whole industry in India and has risen by 58 per cent during the period 2004-09. Apart from this, illicit trade of duty evaded cigarettes accounts for 10 per cent of the industry affecting revenue collections by Rs 1,000 crore.
Rawat added, "This increases the overall tobacco consumption, thereby defeating objectives of public health and sub-optimise revenue collections."