India’s Untaxed Khaini Market: A Multibillion-Dollar Gap

Quick Summary

• Key Issue: India’s smokeless tobacco sector, especially khaini, remains largely untaxed due to informal and unregulated distribution channels.
• Tax Paradox: Formalized khaini faces a tax burden of around 77% of its retail price, higher than cigarettes (average 55%), despite being less harmful and disproportionately consumed by low-income populations.
• Market Impact: The current tax system incentivizes evasion over transparency, with formal manufacturers struggling against untaxed underground competitors in a ₹45,000 crore market.
• Revenue Loss: This system costs India thousands of crores annually in missed revenue while enabling a thriving black market without regulatory oversight.
• Proposed Solutions:

– Introduce a differentiated cess for traceable pre-packaged khaini to reduce the tax burden to competitive levels (37-50%).
– Scenario-based projections suggest revenue increases to approximately ₹6,750 crore with partial formalization under adjusted rates.

• Broader Implications: A restructured tax regime could not only increase revenue but also boost compliance across informal sectors while enhancing supply chain transparency.

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