ASSOCHAM suggested extant ban on FDI in Tobacco.

New Delhi: To ensure strict implementation of the government’s tobacco control policies and to curb smuggling of host of international brands of cigarettes, The Associated Chambers of Commerce and Industry of India (ASSOCHAM) suggested this the extant ban on foreign  direct investment (FDI) in the tobacco sector should be reinforced by appropriate amendments in Foreign Exchange Management Act(FEMA).

This, the Chamber says, shall prohibit infusion of funds into the tobacco sector whether through advances against equity, preference shares and debentures convertible or otherwise, loans and other form of debt by whatever name called, advances gurantees issued by banks, corporate entities or any other third party, letters of comfort or through any other means.

Similar restrictions ASSOCHAM says should also be extended to entities set up by multinationals in India with the objective of marketing cigarettes and other tobacco products. Further, such entities are also routing funds into India through the ostensible export of services which, being in the nature of current account transactions, are not monitored or curbed in any manner. It is recommended that such transactions above a specified threshold (say $ 1 million) be subjected to regulatory review.

It may be mentioned that in order to futher strengthen its tobacco control objectives the Government was pleased to notify, vide Press Note 2 of 2010 that FDI in the manufacturing of ‘Cigars, cheroots, cigarillos and cigarettes of tobacco and tobacco substitutes’ is prohibited completely, Multi-national cigarette companies are, however, circumventing this prohibition by out-sourcing the manufacture of international brands of cigarettes to local cigarette companies and engaging, thereafter, in the marketing of such brands in the country.

Several multi-national cigarette companies have set up entities in India that are solely engaged in the marketing of international brands of cigarette that are contract-manufactured by local companies. In addition to sourcing funds through equity, these entities also route funds into India through, so called, export of services.
Consequently, the Government’s tobacco control objectives are completely undermined by these entities by circumvention the ban of FDI in this sector. In fact, the demand creation activities carried out by these entities serves as an umbrella to mask the large quantities of international brands of cigarettes smuggled into the country.

ASSOCHAM has further mentioned that leakages from duty-free channels and black-marketing of cigarettes brought in under personal Baggage allowance, purportedly for personal consumption are other significant sources of contraband cigarettes. These avenues of contraband must be closed by banning cigarettes form personal Baggage Allowance and duty-free trade like. It may be noted that such a ban has already been put in place in Singapore and in respect of inter-country movement within the European Union.

It is relevant to note that world over; the indigenously manufactured goods are given priority over foreign manufactured goods for being sold at Duty Free Shops. As such, in case the Government of India is not in a position to introduce the ban as suggested above, a level playing field should be provided to the domestic cigarettes manufacturers by allowing them to place their product in Duty Free Shops located both in the “Arrival” and “Departure” areas of the international Airports. Further, “deemed export” status should also be extended to consignments sold through Duty Free Shops such that these sales do not attract CST/VAT to prevent adverse tax discrimination relative to the imported products.

Source : orissadiary.com