Counterfeiting and Illicit trade costs Government Rs 39,239 crore – FICCI CASCADE

·        Unveils nine sector report - Illicit Market: A Threat to Our National Interest

·        Illicit trade in tobacco products - 9139 crore, mobile phones – 6705 crore, and alcoholic beverages – 6309 crore causes maximum revenue loss to the exchequer

·        Illegal market for Alcohol & Tobacco has been rapidly growing in Andhra Pradesh &Telangana

FICCI CASCADE (Committee Against Smuggling and Counterfeiting Activities Destroying the Economy), today unveiled its nine sector report titled - ‘Illicit Market: A Threat to Our National Interest’. This is a quantitative study evaluating the impact of illicit markets on various economic aspects in the Manufacturing Industry including sectors like FMCG Packaged Foods and Personal Goods, Computer Hardware, Automobiles, Mobile Phones, Tobacco & Alcohol, and secondly - the Media and Entertainment Industry including the Broadcasting and Motion Pictures sectors.

As per the report, the total loss to the government estimated for 2014, on account of the illicit markets in respect of the seven sectors manufacturing industry is Rs 39,239 crores, up from Rs 26,190 crores in 2012.  The loss is inclusive of both indirect and direct taxes -- the indirect taxes component is Rs. 34,020 crore and direct taxes is Rs. 5,218 crore. 

The study has also discovered that during the course of two years from 2011-12 to 2013-14, revenue loss to the Government has grown-up exponentially by Rs. 13,049 crores, an increase by 49.8%. Amongst the various sectors, the maximum revenue loss to the exchequer on account of counterfeiting and illicit trade is attributed to tobacco products at 23%, estimating a revenue loss of Rs. 9139 crores.

The states of Telangana and Andhra Pradeshhave seen a significant growth in illicit trade among these sectors in the last couple of years. It is one of the fastest growing markets for illegal cigarettes and alcohol in the country. The supply of legal cigarettes shows a decline, the illegal players have taken over this market and is growing at a higher rate. In case of alchohol the illegal market is growing significantlyin value and volume.These two sectors are amounting to more than hundreds of crores in loses to the Telangana and Andhra Pradesh Government.

 

Mr P.C.Jha, Adviser FICCI CASCADE and former Chairman, Central Board of Excise & Customs said, “During the last twenty years, the volume of the counterfeiting activity has increased 100 times and the size of trade in counterfeited goods is 10% of the legal international trade (around 2% of the world’s overall economic output).”

Quoting the recently released FICCI CASCADE study, Mr. Jha stated that the loss to manufacturing related sectors has increased by 44.4% in the two years, from Rs72,969 crore in 2011-12 to Rs 105,381 in 2013-14.

The study also establishes a relationship between high taxes and availability of illicit products.  High tax rates tend to exacerbate illicit markets by creating greater demand for cheap and counterfeit substitutes. A significant reason for this being that high tariffs and taxes create opportunities for those involved in illicit markets to step in and supply ‘reduced’ versions of the original product at lower prices. This is true for the tobacco and alcohol Industry. These industries are not only highly taxed; the tax structure is highly complex in nature. Besides, there are considerable differences in tax rates between states which open up opportunities for illegal cross-border trade.

 Comparison 2012 -2014: Loss of Revenue to the Government (Crs)* 

*Top four sectors

Mr Deep Chand, Adviser FICCI CASCADE and former Special Commissioner of Police, New Delhi said, “In the past few decades, leading intelligence and law-enforcement agencies around the world have found conclusive evidence of the increasing involvement of terrorist organizations in counterfeiting, piracy and smuggling activities to fund their activities. While several counterfeiting outfits are transferring portions of their proceeds to terrorist organizations, some of these are set up for the sole purpose of financing terrorism. The need of the hour is tangible actions to increase enforcement and to impose increased punishments. This is imperative to reassure legitimate business owners and consumers that the government is serious about protecting right owners which, in turn, would elicit greater support for government policies.”

Mr. Ravi Verma, (IPS), Deputy Inspector General of Police, Telangana,shared his views about the extent of the menace in the state and also highlighted the various initiatives taken by the TelanganaPolice to curb this growing socio-economic threat. He also thanked FICCI CASCADE for taking up the issue and said that the masses should say ‘NO’ to smuggled good.

Andhra Pradesh and Telangana have seen a significant growth in cigarette illicit trade among these sectors in the last couple of years. The illegal cigarette market in these States have been growing at a fast rate. High VAT(Value Added Tax) on legal cigarette industry, resulting in high prices for legal cigarettes, is the key reason for such an impressive growth of illegal cigarette industry in these State. 

Most of the manufacturers of such illegal cigarettes in India evade the high Central Excise Duty and State VAT and thus are able to offer their products to consumers at rock-bottom prices. Prices of illegal cigarette packs in Andhra Pradesh and Telangana are at one fifth of the price of a legal packet which makes them very attractive to consumers, particularly youth and rural population.

Smuggled international contraband cigarettes are another big menace contributing significantly to the alarming growth of illegal cigarettes in Andhra Pradesh and Telangana. Recently there have been a number of seizures of smuggled cigarettes by the government authorities in these States.Illegal cigarettes ( domestic tax-evaded plus smuggled contraband) are willingly pushed by the trade  because of high trade margins on account of evasion of all kind of duties including Excise and State level VAT. 

Most importantly smuggled cigarettes do not use domestic tobacco which are grown extensively in Andhra Pradesh and Telenagana.Thus increase in availability of smuggled cigarettes in the country affects adversely the livelihood of tobacco farmers situated in Andhra Pradesh and Telangana.

It is thus clear that the objective of increasing revenue from the cigarette industry with increase in VAT in States have been soundly defeated. State governments loses heavily in revenue, traders of the states lose their business to smugglers and anti-social elements and also tobacco farmer of the states are losing their livelihood.Tobacco control objectives are defeated,income of the tobacco farmers of the State are reduced,while illegal traders are filling their coffers.

Several steps have been taken by FICCI CASCADE to create large-scale awareness through various initiatives organised across the country as part of a nation-wide awareness campaign to highlight the issue and focus on the growing menace of smuggling and counterfeiting. In pursuance of the CASCADE agenda, a seminar on ‘Curbing Counterfeiting and Smuggling – An Imperative for Indian Economy’ is being organized in Hyderabad on October 16th, 2015. 

The Chief Guest in the seminar will be Shri Etela Rajender, Minister for Finance and Planning, Consumer Affairs, Government of Telengana. The event will also be addressed by prominent representatives of industry, consumer organizations and senior government officials.

For further information, please contact:

Sudarshan D

M:- 81250 71566

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