Retailers Seek Rethink On Steep Tobacco Tax Hike, Warn Of Illicit Trade Surge
The Federation of Retailer Associations of India raised concerns over a sharp hike in excise duty on legal tobacco products, warning it could hurt small retailers and boost illegal trade. FRAI said sudden price shocks would cut shop-level demand, reduce footfalls, and undermine livelihoods in the informal retail sector, urging the government to adopt calibrated, price-stable taxation instead.
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New Delhi: Federation of Retailer Association of India (FRAI) on Thursday expressed serious concerns over a steep increase in taxes of legal tobacco products, asking the government for a rethink in the interest of small retailers and prevent illegal operators from taking over the market.
The demand from the association comes after the Finance Ministry notification of the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026 that have imposed an excise duty of Rs 2,050-8,500 per 1,000 sticks, depending on cigarette length, effective February 1. This development has caused widespread anxiety among small retailers, hawkers and pavement sellers who depend on daily consumption goods, particularly tobacco products, for their livelihoods, FRAI said in a statement.
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FRAI, which claims to represent about 80 lakh micro, small and medium retailers, cautioned that sudden, steep price increases in items of regular consumption have a disproportionate impact on India's informal retail ecosystem, which employs millions and operates on thin margins and high-volume sales. A sharp price shock will push consumers away from legal markets, reduce footfall at neighbourhood shops and accelerate the shift towards illicit and unregulated alternatives, it said.
FRAI Joint Secretary Gulab Chand Khoda said a sharp rise in prices of legal products immediately kills demand at the shop level and pushes consumers towards illegal alternatives and this leaves small shopkeepers trapped between falling incomes and pressure from illegal suppliers.
Placing the issue in a broader macroeconomic context, FRAI said the present sudden, sharp price hike in a widely consumed category neutralises the benefits of price moderation elsewhere and reverses the benefits of a progressive GST 2.0, undermining consumer confidence and retail stability. The association clarified that it is not opposing taxation or public policy objectives, but urged that taxes be calibrated, revenue-neutral and price-stable.
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