FAIFA has expressed concern that such a steep hike in taxes, as against the Government statements around the revenue neutral transition from Compensation Cess regime to alternative regime, would make domestic manufacturers to raise prices of finished goods, which will lead to a drop in sales, hurting farmers supplies in return. This could cause a glut in the tobacco crop market in the near term.
Already, India’s tobacco tax regime is openly discriminatory against FCV tobacco growers hailing from the states of Andhra Pradesh and Karnataka. FCV tobacco farmers are already suffering under the burden of extremely high taxation rate on cigarettes (using FCV tobacco) which were on per kg basis more than 50 times higher than for bidis and more than 30 times higher than for Chewing tobacco. Further, while FCV tobacco attracts more than ₹6 in tax per dose in the finished product, other tobacco forms used in bidis and chewing products are taxed at less than one paisa per dose. Such extreme disparity punishes the most regulated and compliant farmers. The current steep excise hike is further widening this fiscal discrimination and will crush FCV growers and distort the entire tobacco economy.
Murali Babu, President, FAIFA, said: “While announcing GST 2.0 on 4 September 2025, Government had assured 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.”
Appealing to the government, FAIFA leaders stressed that India’s legal cigarette prices are already among the least affordable globally when measured against per capita income, as reflected in World Health Organization’s affordability index. Current steep increase will render legal products unaffordable to a huge section of consumers, accelerating consumer migration to illegal channels.
FAIFA has urged the Government to roll-back the notified excise rates and revise them to revenue-neutral rates, to disincentivise smuggling, and support domestic agriculture. A stable taxation framework, FAIFA noted, is necessary to sustain farmer incomes, protect employment across the value chain, and align economic policy with long-term public health goals.
FAIFA warns that India already faces a serious smuggling challenge. As per industry and market data, India has emerged as the fourth-largest illicit cigarette market globally, with illegal products accounting for roughly 26% of total cigarette consumption. This growth has been driven primarily by tax arbitrage, where high and uneven taxation makes smuggled products significantly cheaper than legal ones. A sharp increase in prices will cause the illicit market to expand rapidly, overwhelming enforcement efforts and leading to significant revenue loss for the exchequer.
The FCV tobacco farming sector has experienced sharp volatility and prolonged stress over the past decade. Auctioned FCV quantities stood at 304.21 million kg in 2023–24, compared with 315.95 million kg ten years ago in 2013–14, indicating consistent decline in legal demand over the period. Throughout the decade, farmers have been exposed to repeated cycles of contraction and uncertainty, largely driven by fluctuations in legal cigarette prices on the back of tax increases. At the same time, FCV cultivation acreage has declined sharply from 2,21,385 hectares in 2013–14 to 1,22,257 hectares in 2020–21, resulting in an estimated loss of nearly 35 million man-days of employment across farming, auction platforms and ancillary activities.
At the same time, farm input costs have remained elevated: global fertiliser prices firmed up again in 2025, with the World Bank noting a 15% rise in its fertiliser price index since the start of the year and sharp moves in key nutrients like DAP (+23%), prompting the Government to extend special support for DAP to keep it affordable for farmers. Labour costs have also trended upward, with official replies indicating 7% increase in notified wage rates for FY2024–25 over FY2023–24, alongside persistent pressures from diesel-linked transport and logistics. Together, softer farmgate realisations and rising cultivation costs are compressing margins—leaving growers with limited capacity to absorb any further demand shock triggered by abrupt price hikes in the legal market.
Appealing for a review, FAIFA has urged the Government to urgently roll back the steeply notified excise rates and prevent the unintended consequences that will ripple across the entire farming ecosystem. A sudden and excessive tax shock will destabilise millions of farmers, farm workers, auction labourers, and small retailers who depend on the legal tobacco value chain for survival. Such a move will shrink legal demand, fuel illicit trade, and push honest livelihoods into distress. FAIFA appeals to the Government to uphold its commitment to stability, revenue neutrality and farmer welfare, and ensure that taxation policies do not punish those who have always remained within the law.
