VAT on cigarette-tobacco to rise unemployment

New Delhi, Dec 24: Cigarette tobacco growers have submitted a memorandum to the Finance Minister expressing concern over proposed imposition of VAT (value-added tax) on tobacco from the next financial year, which they say will result in consequent rise in unemployment and drastic drop in farm income of cigarette-tobacco farmers.

In the memorandum, leaders of the Federation of Farmers Associations, representing 14 cigarette tobacco growing associations of Andhra Pradesh and Karnataka, here said cigarettes are already a highly taxed product, attracting an excise and state taxes close to 140 per cent.

''Till now the tobacco farming community has not fallen victim to the mass farmer suicides which have been pervasive in Andhra Pradesh and Karnataka. The imposition of VAT on cigarette tobacco -- which is nothing but a tax on tax -- will seriously threaten the livelihood of around seven lakh cigarette tobacco farmers and thirty lakh family members in these two states. Past experience tells us that a significant increase in tax on cigarette has resulted in a drastic drop in income of these farmers,'' said Mr Sivaram Prasad, General Secretary, Tobacco Growers Welfare Association.

In 2001, when taxes of cigarettes were increased by 15 per cent, the cigarette industry passed on the burden to consumers, resulting in close to a 20 per cent drop in demand for cigarette-tobacco.

There was a consequent rise in unemployment and drastic drop in farm income of these farmers, which led to an increase in crime rates in the tobacco growing regions of Andhra Pradesh, as well as large-scale migration of farm labour to urban areas, Mr Prasad said.

''The Empowered Committee of State Finance Minsiters on VAT should have consulted us before deciding to impose VAT on cigarette tobacco. This would have given us a chance to present to the government our viewpoints and also discuss measures that could be taken to ensure that Government Policy does not drive farmers to the brink of poverty,'' Mr Prasad said.

The imposition of VAT will most definitely lead to a rise in the price of cigarettes.

Mr B V Javaregowda, Member, Tobacco Board, commented that ''a rise in the price of cigarettes will invariably cause an increase in the inflow of contraband which is already costing the government around Rs 2,000 crore in revenue loss and also significantly denting farmer income.''

UNI