New Delhi, Jan 2 (UNI) The Federation of All India Farmer Associations (FAIFA) has raised serious concerns over a steep increase in excise duties on tobacco products, warning that the move could severely impact farmers’ livelihoods, fuel illicit trade, and distort India’s tobacco economy.
FAIFA’s reaction follows a notification issued by the Ministry of Finance under the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026.
The notification imposes an excise duty ranging from Rs 2,050 to Rs 8,500 per 1,000 sticks on cigarettes, depending on length, effective February 1, 2026.
According to the farmers’ body, the sharp tax hike contradicts earlier government assurances that the transition from the Compensation Cess regime to an alternative tax structure would be revenue-neutral.
FAIFA cautioned that higher taxes would compel domestic manufacturers to raise prices of finished goods, resulting in lower sales and a corresponding drop in demand for tobacco crops, potentially leading to oversupply and distress in farming markets.
FAIFA also highlighted what it termed as discriminatory taxation against Flue-Cured Virginia (FCV) tobacco growers, primarily from Andhra Pradesh and Karnataka.
It pointed out that cigarettes made from FCV tobacco attract taxes per kilogram that are over 50 times higher than bidis and more than 30 times higher than chewing tobacco.
While FCV tobacco reportedly bears more than Rs 6 in tax per dose, other tobacco forms are taxed at less than one paisa per dose, placing a disproportionate burden on regulated and compliant farmers.
Murali Babu, President, FAIFA, said, “While announcing GST 2.0 on September 4 2025, government had said that in the case of tobacco products, GST would be charged at 40% of the retail sales price, while the overall incidence of tax would be kept unchanged.”
“The farming community across India has been holding on to this assurance of revenue neutrality and had welcomed the government’s decision to rationalise GST by restructuring rates and doing away with the 12% slab, which helped reduce prices. We are shocked to see that the promise has not been kept, and instead a sharp increase in taxes has been notified, at the cost of farmers’ livelihoods,” he added.
FAIFA further warned that higher prices of legal tobacco products could accelerate consumer migration to illegal channels.
Citing industry and market data, the association noted that India is already the world’s fourth-largest illicit cigarette market, with illegal products accounting for about 26% of total consumption. It argued that further tax-driven price hikes would expand smuggling, undermine enforcement efforts, and result in significant revenue losses for the exchequer.
The association also drew attention to long-term stress in the FCV tobacco sector. Auctioned quantities declined from 315.95 million kg in 2013-14 to 304.21 million kg in 2023-24, while cultivation acreage fell sharply between 2013-14 and 2020-21, leading to an estimated loss of nearly 35 million man-days of employment. At the same time, farmers are facing rising input costs, including higher fertiliser prices and increased labour wages, further compressing margins.
FAIFA has urged the government to roll back the notified excise rates and revise them to revenue-neutral levels.
The organisation said a stable and predictable taxation framework is essential to protect farmer incomes, discourage illicit trade, sustain employment across the value chain, and prevent unintended economic fallout across rural communities.
Excise duty hike on tobacco may hit farmers, fuel illicit trade: FAIFA
