Introduction

The GST Council, led by Finance Minister Nirmala Sitharaman, has approved amendments to the Central GST Act to empower the government to enforce a "track and trace mechanism" for specified evasion-prone commodities. This system is expected to cover cigarettes and pan masala, among other products, with the aim of curbing tax evasion and illicit trade.

Mechanism Details

The mechanism will be based on a Unique Identification Marking, which will be affixed on the goods or their packages. This will provide a legal framework for developing such a system and help in tracing specified commodities throughout the supply chain. The move is aimed at reducing tax evasion and illegal trade, particularly in the tobacco industry, which is seen as highly prone to leakages.

Impact on Industry

The introduction of this system could significantly impact the tobacco industry, with the government estimating losses of Rs 21,000 crore per year due to illegal cigarette trade. The World Health Organization (WHO) is also seen as a driver of this plan under the Convention on Tobacco Control and Protocol to Eliminate Illicit Trade in Tobacco Products.

Global Precedents

The track and trace mechanism is widely used in several parts of the world, including the European Union, the UK, and Turkey. In these regions, all manufacturers, importers, and those involved in storing, selling, or transporting tobacco products are mandated to register and seek unique IDs. Goods are scanned from the point of arrival for imports and dispatch in case of domestic production, with data transmitted electronically and tracked throughout the supply chain.