Govt loses 58,521-cr tax revenue due to illicit trade

New Delhi: The exchequer is estimated to have lost Rs 58,521 crore in taxes in 2019-20 due to illicit trade in goods in 5 key industries, including FMCG, mobile phone, tobacco products and alcohol, a Ficci report said on Thursday.

The report estimates the size of illicit markets in these industries at a little over Rs2.60 lakh crore for the year 2019-20, with the FMCG industry accounting for 75 per cent of the total illicit value of goods in five key industries.

"The estimated tax loss to the government due to illicit goods in these five key industries is Rs 58,521 crore," said the report titled 'Illicit Markets: A Threat to Our National Interests' by FICCI's Committee Against Smuggling and Counterfeiting Activities Destroying the Economy (CASCADE).

The two highly regulated and taxed industries, tobacco products and alcoholic beverages, account for nearly 49 per cent of the overall tax loss to the government due to illicit markets in these five key industries. The maximum number of jobs (7.94 lakh) were lost due to illicit trade in the FMCG packaged foods industry, followed by tobacco industry (3.7 lakh), FMCG household and personal goods industry (2.989 lakh), alcoholic beverages industry (97,000), and mobile phone industry (35,000). The tax loss to the government due to illicit trade in these five sectors stood at Rs 17,074 crore (FMCG packaged foods), Rs 15,262 crore (alcoholic beverages), Rs 13,331 crore (tobacco products), Rs 9,995 crore (FMCG household and personal goods), and Rs 2,859 crore (mobile phones). "The impact of the illicit market of these key industries on the economy is pervasive and significant because of the backward linkages of these industries with other sectors of the economy resulting in a multiplier effect. Higher the multiplier, higher is its overall effect on the economy," the report said. Of the total illicit market size of Rs2.60 lakh crore, FMCG industry (household and personal goods, packaged foods) constitute over Rs1.97 lakh crore. This is followed by alcoholic beverages at Rs 23,466 crore, tobacco products (Rs 22,930 crore) and mobile phones (Rs 15,884 crore).

The report highlights that to deal with the menace of illicit markets in India, addressing the demand and supply gap of legitimate goods, strengthening the domestic manufacturing sector, increasing awareness among consumers, rationalisation of tariffs to reduce tax arbitrage, creation of a conducive environment for innovation and better international coordination and cooperation are some of the way forwards.