Smugglers cash in on foreign cigarettes as gold loses shine

The cases of gold smuggling fell by about 70 per cent in 2015-16, compared with 2014-15, as smuggling of foreign cigarettes became more profitable, said a source in Directorate of Revenue Intelligence.

Huge margins, high custom duty and increasing demand among youngsters have led to exponential increase in smuggling of foreign cigarettes.

According to DRI’s latest data, 13.86 crore (138.6 million) foreign-made cigarette sticks worth Rs 151 crore (Rs 1.51 billion) were seized in FY16, 25 per cent more than a year ago.

In FY14 and FY13, the authorities had seized smuggled cigarettes worth Rs 11 crore (Rs 110 million) and Rs 22.32 crore (Rs 223.2 million), respectively.

“Significant increase in custom duty (150 per cent) and excise duty (25 per cent) on imported cigarettes makes their smuggling a lucrative bet (with 100 per cent margin),” Explained a former DRI official.

This means, if an importer smuggles foreign cigarettes worth Rs 50 lakh (Rs 5 million), he stands to gain an equal amount as profit.

“Smugglers have created a distribution chain across India. Dubai continues to be the main source for cigarette smuggling to India,” he added.

High margin on foreign cigarettes is one of main reasons why gold smuggling has declined over the past one year.

DRI data suggests that yellow metal worth Rs 340 crore or Rs 3.4 billion (about 1, 360 kg) was seized in 2015-16, about 70 per cent less than the previous year.

“Margin on gold smuggling is low as one gets nearly 12 per cent of the total value,” said an official.

“The fall was largely because of withdrawal of restrictions on imports and introduction of schemes like 80:20, which have caused disruptions in gold market.

"The leeway over the import of unrefined gold also affected the smuggling in a big way,” said P R Somasundaram, MD (India) World Gold Council.

Smuggling of cigarettes is also easier as scanners at the airports don’t detect them.

Another reason driving cigarette smuggling is the restrictions on the number of sticks that passengers can carry.

As per the current norms, one passenger can carry up to 200 sticks only.

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