Tobacco products, a key contributor to India’s GST revenue, are about to undergo a major change. The GST Council has recently approved a proposal to implement a “Track and Trace Mechanism” aimed at curbing tax evasion in tobacco-based products. This mechanism will require cigarette packs and gutka pouches to bear a unique identifier, ensuring greater transparency across the supply chain.
Tobacco Products: A Crucial GST Contributor
Tobacco products account for around 5% of India’s total GST revenue, making them the fifth-largest contributor. However, the sector has been plagued by tax evasion, leading to significant revenue losses for the government. With the introduction of a unique identifier system, authorities aim to tighten controls and enhance compliance.
What Is the Track and Trace Mechanism?
The proposed system involves affixing a Unique Identification Marking on tobacco products and their packaging. This legal framework, based on recommendations by the Law Committee, is designed to track products throughout their supply chain.
Key Features of the Unique Identifier:
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Non-sequential and Non-predictable: Prevents counterfeiting by ensuring identifiers cannot be easily replicated.
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Secure and Non-removable: Must be irremovably printed or affixed and indelible.
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Visible and Invisible Elements: Includes tamper-proof security features to verify authenticity.
The identifier will contain critical information such as:
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Date, place, and factory of manufacture.
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Machine and production shift used in manufacturing.
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Product description and quantity.
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Maximum retail price and intended market.
How Will It Work?
Manufacturers, dealers, and wholesalers will be required to record and transmit data related to product movement to a secure database managed by an independent provider or government servers. This data will be accessible to enforcement authorities for verification.
Exemptions for Retailers:
Retailers will not be obligated to implement this system, simplifying operations for smaller businesses.
Penalties for Non-compliance
To ensure adherence, the proposal includes stringent penalties. Violators will face a fine of ₹1 lakh or 10% of the tax payable on the goods, whichever is higher. This provision underscores the government’s commitment to eliminating tax evasion in the tobacco sector.
Alignment with WHO Protocols
The Track and Trace Mechanism aligns with the World Health Organization’s (WHO) Protocol to Eliminate Illicit Trade in Tobacco Products. Under this protocol, member nations must establish a global tracking and tracing system within five years of its enforcement.
Key Provisions of the WHO Protocol:
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Licensing, due diligence, and record-keeping.
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Security measures for online sales, duty-free zones, and international transit.
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A global information-sharing point for tracking tobacco trade.
India’s adoption of this mechanism signifies its commitment to global standards in combating illicit tobacco trade.
Cost Implications for Stakeholders
The implementation cost of the Track and Trace Mechanism will be recovered from businesses through fees for generating unique identifiers. Manufacturers and importers will also need to enter into data storage contracts with third-party providers approved by the government.
Looking Ahead
The introduction of a Unique Identification Marking system is a significant step toward addressing GST evasion in tobacco products. By enhancing transparency and accountability, this initiative is poised to secure government revenues while aligning with international protocols. As the rollout progresses, stakeholders will need to adapt to the new requirements and collaborate to ensure its success.