New Delhi, Jan 18 (UNI) Indian small retailers’ concerns about losing sales to illicit goods, in anticipation of a steep increase in taxes on cigarettes effective February 1, 2026, are supported by the Swadeshi Jagran Manch (SJM), an Indian economic and cultural organisation affiliated with the Rashtriya Swayamsevak Sangh (RSS).
SJM cautioned against the rising influx of smuggled foreign cigarettes into Bharat, as illicit trade is expanding through multiple channels and posing risks to domestic livelihoods, even as retailers’ bodies and the Indian Sellers Collective warned of a wider impact on livelihoods and the country’s vast retail chain.
Agreeing with the concerns of the small retailers, Dr. Ashwani Mahajan, National Co-Convener of the Swadeshi Jagran Manch, said, “High taxes on sin goods have historically led to expansion of the black market, with smuggled products — often benefiting foreign producers — filling the gap created by unaffordable legal prices. Policymakers should consider ground realities and avoid creating conditions where smuggling becomes the only alternative, undermining domestic producers and honest retailers.”
He added that if smuggling were to increase sharply, small shopkeepers and kirana retailers, who form the backbone of India’s retail economy, would be bearing the brunt of the problem. “Majority of small retailers wish to earn an honest livelihood, but the unchecked spread of illegal products by unscrupulous elements distorts the market and creates unfair competition,” Mahajan said, calling for stronger enforcement against smuggling networks.
Smuggling remains a major menace in India due to porous borders and entrenched illicit supply networks conditions that critics say are worsened when legal products become prohibitively priced. Recent global examples underscore this risk, from the shutdown of a cigarette manufacturing facility in South Africa after smuggled sales overwhelmed the legal market, to the detention of a former senior customs official in Azerbaijan in a high-profile tobacco smuggling case, highlighting how price distortions can fuel organised and systemic illegality.
Echoing concerns around the supply chain, All India Consumer Products Distributors Federation (AICPDF), which represents distributors and wholesalers across fast-moving consumer goods, said policy reforms should carefully consider unintended consequences at the ground level.
Dhairyashil Patil, National President of All India Consumer Products Distributors Federation (AICPDF), said the federation supports the broader objective of GST reforms and views GST 2.0 as a positive step toward simplification and improved compliance.
However, he cautioned that any sharp increase in taxes on legal sin products would severely harm the traditional brick-and-mortar retail system. “Past experience clearly shows that steep tax hikes on legal products encourage smuggling and the spread of counterfeit goods. Such measures divert consumers toward illicit channels, causing significant revenue losses for law-abiding distributors and retailers.”
“This shift not only weakens the organized distribution and retail ecosystem but also results in substantial losses to government revenues. More worryingly, it strengthens the parallel economy by boosting smuggled goods and directly benefits anti-social and anti-national elements that thrive on illegal trade.”
Traditional brick-and-mortar retailers are already under immense pressure due to unfair competition from online platforms and quick-commerce players. Tobacco products are among the few remaining categories where small shopkeepers continue to have relevance and livelihood.
If this segment is also driven into the hands of illicit networks, it will be devastating for honest retailers. This issue goes far beyond taxation. It is about the survival of lawful businesses, protection of government revenue, and preventing the empowerment of illegal and anti-national forces.”, he added.
Raising concerns over the impact of proposed legislation of recent increase in tobacco taxes, stakeholders said higher levies would make enforcement more challenging. Abhay Raj Mishra, Member and National Coordinator of Indian Sellers Collective, said the latest hike in tobacco taxes could worsen the already serious problem of smuggling and illicit sales.
“International experience from Australia clearly shows how overly aggressive tobacco taxation can backfire. Recently Australia’s Health Minister acknowledged that the illegal tobacco market has ‘exploded’, prompting lawmakers to publicly appeal for a reduction in tobacco taxes, as enforcement measures have repeatedly failed.”
“The bigger danger is that once illicit syndicates are allowed to get entrenched, it becomes impossible to uproot them later, even when taxes are lowered later. They penetrate the official system, build linkages with corrupt officials, and thrive alongside the formal system. The time to act is now by averting this crisis in India through balanced taxation.” Mishra added.
Trade bodies said a coordinated approach involving balanced growth in taxation, stepped up role of enforcement agencies and monitoring of digital platforms is needed to tackle the growing challenge of smuggling and illicit trade, warning that failure to do so could have long-term implications for the formal economy.
