Revive tax increases, stub out tobacco product use

Context: Apart from COVID-19 pandemic (which is reported to have killed half a million Indians over the past two years), tobacco is a silent killer in our midst that kills an estimated 1.35 million Indians every year.

Impact of Tobacco Consumption

Tobacco Related Death: 3,500 Indians die every single day, as estimated by scientific studies.

Economic Burden: It comes with an economic cost of ₹1,77,340 crore to the country or more than 1% of India’s Gross Domestic Product (GDP).

How pricing and taxation determines Tobacco Consumption?

Research shows that a price increase induces people to quit or reduce tobacco use as well as discourages non-users from getting into the habit of tobacco use. Taxation is one of the most cost-effective measures to reduce the demand for tobacco products.

Challenges in Discouraging Tobacco Consumption in India

Inadequate Taxation: There has been no significant tax (GST) increase on any tobacco product for four years, barring a minor increase in the National Calamity Contingent Duty (NCCD) during the Union Budget 2020-21 which only had the effect of increasing cigarette prices by roughly 5%.

The Union Budget 2022-23 also didn’t hike tax on any tobacco product. ITC stocks gained by more than 6% and outperformed most other stocks.

Cess applied on cigarettes has remained unchanged for four years in the face of increasing inflation.

Consequence of not increasing the taxes on tobacco products

Loss of Revenue: Absence of hike of taxes on tobacco product means foregone tax revenues for the Government. In fact, Government of India is looking forward to increasing the share of public spending on health. For example, in the recent Union Budget, it has budgeted 2.2% of the total expenditures towards health.

Making Tobacco Products Affordable: The lack of tax increase in a country makes all tobacco products increasingly more affordable.

Increase Tobacco Users Base: It is known that more affordable tobacco products could attract new users, especially among the youth.

Suggestions

The Goods and Services Tax (GST) Council should raise either the GST rate or the compensation Cess levied on tobacco products.

Expanding the Tobacco Products under Taxation Domain: Bring in bidi under taxation as it does not have a Cess levied on it under the GST while all other tobacco products attract a Cess.

Source: The post is based on the article “Revive tax increase, stub out tobacco product use” published in the Hindu newspaper on 09^th March 2022.