FRAI says higher excise duties could squeeze small sellers and push consumers towards illegal products
Indian retailers have urged the government to reconsider a sharp increase in taxes on legally sold tobacco products, warning that the move could hurt small businesses and allow illegal operators to gain market share.
The Federation of Retailer Association of India (Frai) said it has asked authorities to lower the newly notified tax rates to protect small retailers and curb the risk of illicit trade expanding in the tobacco market.
The appeal follows a Finance Ministry notification on the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026, which raises excise duty on cigarettes to between 2,050 rupees and 8,500 rupees per 1,000 sticks, depending on cigarette length. The revised rates are due to take effect from 1 February.
Frai said the sudden increase has caused concern among small shopkeepers, hawkers and pavement vendors who rely heavily on tobacco products for daily sales. The association claims to represent about 8 million micro, small and medium retailers across India.
“Our members are among the poorest self-employed citizens of this country. They sell goods of daily use to earn just enough to feed their families. A sharp rise in prices of legal products immediately kills demand at the shop level and pushes consumers towards illegal alternatives,” said Gulab Chand Khoda, Joint Secretary, Frai.
The association warned that abrupt price hikes in high-volume products could disproportionately hurt informal retailers, who typically operate on thin margins and depend on steady cash flows.
FRAI also said organised networks selling banned products, including vapes, were increasingly targeting micro retailers, particularly in densely populated urban areas and near schools. With vaping already prohibited in India, the group said economic pressure could make small sellers more vulnerable to illegal supply chains offering higher margins.
“We certainly cannot afford to criminalise an entire generation and class of sellers in the country with one stroke of price hikes,” Khoda said.
The association flagged working-capital challenges as another concern, noting that higher taxes would raise inventory costs. Limited access to credit could make it harder for small retailers to stock higher-value goods, potentially benefiting larger organised players.
“Our members want to remain law-abiding and sell only legal Indian products, but when prices rise sharply, customers simply walk away or demand illegal alternatives,” said Vinay Kumar, Secretary, Frai.
While not opposing taxation in principle, the association urged the government to reassess the revised excise rates, warning that sudden price increases in widely consumed products could weaken consumer confidence and undermine compliance at the retail level.
