The Union government on Tuesday told Parliament that it does not have any assessment on whether higher taxation on tobacco and tobacco products has adversely affected the incomes of tobacco farmers. Industry bodies have repeatedly argued that the steep tax hikes imposed earlier this year could hurt growers and encourage illicit trade.
Replying to a starred question in the Lok Sabha, the Ministry of Commerce and Industry said, “With regard to direct correlation between higher taxation on tobacco and tobacco products and its adverse impact on the income of tobacco farmers, no such assessment is available with the department.”
The government introduced a new excise duty regime on tobacco products effective February 1, 2026, replacing the earlier compensation cess framework. Cigarettes now attract excise duty ranging from ₹2,050 to ₹8,500 per 1,000 sticks, depending on their length, in addition to the existing GST.
The reply came months after farmer groups, including the Federation of All India Farmer Associations (FAIFA), opposed the increase in excise duty on tobacco products, saying higher taxes would reduce demand for legally produced tobacco, affect farmers’ incomes and increase smuggling.
The government, in its reply, said India is the world’s second-largest tobacco producer after China. It added that exports of tobacco and tobacco products increased from 240.93 million kg, valued at ₹6,450.66 crore, to 368.85 million kg, valued at ₹17,192.04 crore, over the past decade. This represents a 53.10 per cent increase in quantity and a 166.51 per cent increase in value.
The government also said it has taken measures to support Flue-Cured Virginia (FCV) tobacco growers, including promoting Good Agricultural Practices, supplying quality seeds, fixing authorised crop size in consultation with stakeholders and strengthening the electronic auction platform for transparent price discovery and timely payments.
According to the reply, the average price realised by FCV tobacco growers has risen from ₹134.43 per kg to ₹251.14 per kg over the last 10 years, an increase of 86.82 per cent.
The government also listed measures introduced to curb illicit trade and tax evasion in the tobacco and pan masala sector, including a capacity-based central excise levy, retail sale price-based valuation under GST, withdrawal of the IGST refund route for zero-rated tobacco exports, mandatory monthly declarations of production capacity and output, and a track-and-trace mechanism for evasion-prone commodities.
