Extinguishing the tobacco industry’s main narrative

News: Tobacco’s detrimental impact on public health is well documented. It kills more than 13 lakh Indians every year, while casting an annual economic burden of more than 1% of GDP. 

Yet there’s been no significant tax increases on any of the tobacco products for the past four years since the introduction of GST in 2017. This has made these products affordable.  

Meanwhile, the tobacco industry falsely claims that illicit trade in tobacco increases with an increase in the taxes on tobacco products.  

Why tax tobacco products?

As per research, price and tax measures are one of the most cost-effective steps to reduce the demand for tobacco products.  

Tobacco products become expensive and people either quit using them or use them less. 

Do tax increments lead to growth in illicit trade of tobacco? 

Tobacco industry estimates show that illegal cigarette trade accounts for as much as 25% of the cigarette market in India, and this will only increase with more taxation. 

However, these estimates and conclusions are not based on any transparent studies. 

Two studies published in peer-reviewed scientific journals in recent years have estimated that the percentage of illicit cigarette trade falls in the range of 2.7%-6.6% of the total market. This is very less than compared to claims of tobacco industry. 

Any increase in taxes on tobacco products will hurt both revenue and profits of the tobacco industry, so it has always tried to resist any attempt of increase in taxes on tobacco products. 

What are the factors that actually affect illicit trade? 

Taxes and prices are not the key determinants of illicit trade There are several countries where tobacco taxes are quite high and yet have low levels of illicit trade and vice versa. 

Numerous factors are known to play a larger role in determining the scale and the extent of an illicit market, like

– the quality of tax administration

– Strength of the regulatory framework

– Govt commitment to control illicit trade, etc

How has the WHO responded to this public health issue? 

WHO had introduced Protocol to Eliminate Illicit Trade in Tobacco Products that has eliminating all forms of illicit trade in tobacco as one of its principal goals. India has ratified the protocol. 

The protocol provides the tools and the measures to eliminate or minimise illicit trade, including strong governance, establishing an international track and trace system, and securing supply chains. 

What is the way forward? 

Although estimated percentage of the illicit market for cigarettes in India is far lower than world average, but it has to find ways to eliminate even this small percentage. 

Government should :

– to increase tax on tobacco products.

– implement other measures as suggested in WHO’s protocol.

Source: This post is based on the article “Extinguishing the tobacco industry’s main narrative” published in The Hindu on 7th Jan 2022.