Kamal Ghorui
VIJAYAWADA: Union Finance Minister Nirmala Sitharaman on Thursday assured FCV tobacco farmers and stakeholders that the government would review concerns arising from the recent tax hike and consider its impact on farmers, trade, and the regulated tobacco ecosystem, while maintaining a revenue-neutral approach.A delegation of FCV tobacco farmers from Andhra Pradesh, Telangana, and Karnataka, led by Rajahmundry MP Daggubati Purandeswari and Tobacco Board Chairman Yashwanth Kumar Chidipothu, met the Finance Minister to highlight the likely adverse impact of the tax increase on farmers’ livelihoods and the regulated FCV tobacco system.During the meeting, the delegation warned that the sudden tax hike could cause severe distress to lakhs of farming families dependent on FCV tobacco cultivation and disrupt the regulated marketing framework. They cautioned that a sharp increase in taxation could reduce legal trade, trigger revenue loss for the government, and fuel the growth of illicit trade, undermining enforcement efforts. They also stressed the need to protect the domestic industry by ensuring the stable availability and use of low-grade tobacco, which is critical for sustaining farmer incomes, auction stability, and overall demand.Yashwanth Kumar Chidipothu explained in detail the repercussions of the tax hike on auctions, buyer participation, and trade confidence. He said that although the hike was projected as revenue-neutral, it had come as a major policy shock to farmers and the regulated sector. With the notified rates effective from 1 February, the tax on legal cigarettes would rise by around 73%, making it two to three times higher, putting severe pressure on legal demand and the auction-based FCV ecosystem.He warned that reduced buyer participation could weaken auction competitiveness, leading to lower prices, higher unsold stocks, and direct losses to farmers, affecting the entire value chain.Farmers from Andhra Pradesh and Telangana informed the Finance Minister that the crop was ready and auctions were expected to commence next month. They expressed concern that the tax hike could sharply reduce domestic consumption, result in price crashes, and lead to accumulation of unsold stocks. They also cautioned that abrupt tax shocks historically encourage illegal and smuggled products, citing South Africa as an example where illicit trade reportedly expanded to nearly 75% of the market.Farmers from Karnataka said auction prices had already fallen by nearly 10%, and traders were unlikely to participate after 1 February due to the 18% tax on unmanufactured tobacco. They warned that further reduction in buyer participation would severely impact the auction system and cause heavy losses to farmers.Responding to the concerns, Nirmala Sitharaman said the government would carefully examine the issues raised and review the concerns. She assured that the government was not seeking to generate additional revenue from the tobacco sector and would consider the impact on farmers, trade, and the regulated ecosystem.
