Low tobacco tax, poor health

News: The absence of an increase in tax on tobacco products post-GST has impacted revenue and could worsen public health

What is the status of tobacco consumption in India?

India is the second-largest consumer of tobacco in the world, with 28.6% of adults above 15 years and 8.5% of students aged 13-15 years use tobacco in some form or the other.

How is the government dealing with tobacco and associated products?

Since the introduction of GST, the government has not increased taxation of tobacco products to discourage their consumption. There was only a small increase in the National Calamity Contingent Duty (NCCD), which only increases the average price of cigarettes by about 5%. There is a 3% real decline in GST revenues from tobacco products in the past two financial years. This lack of increase in tax offers more benefits to tobacco-based industries and less to the government.

Before the GST, excise duty and VAT were regularly raised on tobacco products. Because of these policies, there was a reduction of 17.3% in tobacco use among adults in India between 2009-10 and 2016-17, as identified by the Global Adult Tobacco Survey.

How does the lack of tax increase impact health targets and government revenue?

Health: World Health Organization recommended a uniform tax burden of at least 75% for each tobacco product. But, the tax burden in India on bidis, cigarettes, and smokeless tobacco, on average, stands at 22%, 53%, and 64% in 2021. It might bring some current smokers to smoke more now and some non-smokers to start smoking. This might jeopardize India’s commitment to achieving 30% tobacco use prevalence reduction by 2025 as envisaged in the National Health Policy of 2017.

Revenue: Excise duty on tobacco is very low in India. The share of central excise duties including NCCD in the total tobacco taxes decreased from 54% to 8% for cigarettes, 17% to 1% for bidis, and 59% to 11% for smokeless tobacco products, on average, from 2017 (pre-GST) to 2021 (post-GST).

What should the government do?

Government should increase the excise tax of at least ₹1 per stick of bidis while aiming for a significant increase in the excise tax of cigarettes and smokeless tobacco products.

An increase in taxation can affect the affordability of tobacco products, which further led to reduced tobacco use prevalence. It will further help India to achieve sustainable development goals.

Source: This post is based on the article “Low tobacco tax, poor health” published in The Hindu on 9th December 2021.