Illicit trade costs Govt Rs 39,239 crore: FICCI CASCADE

Hyderabad, Oct 15 (INN): 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 Pradesh have 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 alcohol the illegal market is growing significantly in value and volume. These two sectors are amounting to more than hundreds of crores in loses to the Telangana and Andhra Pradesh Government.

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, 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.