CALCUTTA, India ? Last week the Bengal government raised the value-added tax (VAT) on cigarettes to 20 percent from 13.5 percent, reports The Telegraph.��
Although the tax increase likely won?t change the price consumers pay for cigarettes, the increased levy, which will be borne by manufacturers and wholesalers, could create an environment that encourage ?from other states and somewhat blunt the government?s drive to generate more revenue.
?Tthe VAT increase in Bengal opens up a window of lucrative opportunity for unscrupulous operators if they smuggle in cigarette cartons from other states where the same tax is lower,? writes the newspaper. The tax on tobacco products is 13.5 percent in Orissa and Bihar and 14 percent in Jharkhand ? all below the new 20 percent VAT in Bengal.
The newspaper also notes that the problem could be more severe in areas that border other states. ?Unless the administration keeps a close vigil, smuggling would impact revenue collection on account of cigarettes,? an industry executive commented.
One tobacco industry veteran also commented to the newspaper that contraband cigarettes should be a major concern. ?High and differential tax rates provide an attractive arbitrage opportunity for smuggling, tax evasion and incentive for illegal manufacturing of stocks,? he said.
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