Revive tax increases, stub out tobacco product use

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Revive tax increases, stub out tobacco product use

  • The Government must stop the increasing affordability of tobacco items and also rationalise their taxation under GST

Another epidemic

  • A silent killer in our midst that kills an estimated 1.35 million Indians every year.
  • It is the use of tobacco as a result of which more than 3,500 Indians die every single day, as estimated by scientific studies.
  • It also comes at a heavy cost: an annual economic burden of ₹1,77,340 crore to the country or more than 1% of India’s Gross Domestic Product (GDP).
  • Although not a communicable disease like SARS-CoV-2, the tobacco epidemic — as the World Health Organization characterises it — has some definitive solutions that can reduce the death toll.
  • There is overwhelming consensus within the research community that taxation is one of the most cost-effective measures to reduce demand for tobacco products.

Lost opportunity

  • There has been no significant tax increase on any tobacco product for four years in a row which is quite unlike the pre-GST years where the Union government and many State governments used to effect regular tax increases on tobacco products.
  • The Union Budget 2022-23 was an excellent opportunity for the Government of India to buck this trend (of not effecting a significant price increase for the longest time in a row) and significantly increase either excise duties or NCCDs on tobacco products.
  • The absence of a tax increase on tobacco has the potential to reverse the reduction in tobacco use prevalence that India saw during the last decade and now push more people into harm’s way.
  • It would also mean foregone tax revenues for the Government especially at a time when the Government of India is looking forward to increasing the share of public spending on health; in the recent Union Budget, it has budgeted 2.2% of the total expenditures towards health.

GST Council should act

  • The Union Budget exercise, however, is not the only opportunity to initiate a tax increase on tobacco products. The Goods and Services Tax (GST) Council could well raise either the GST rate or the compensation cess levied on tobacco products especially when the Government is looking to rationalise GST rates and increase them for certain items.
  • There is no rationale why the specific cess applied on cigarettes (which is currently the largest component of overall cigarette taxes) has remained unchanged for four years in the face of increasing inflation.
  • GST Council meetings must strive to keep public health ahead of the interests of the tobacco industry and significantly increase either the GST rates or the GST compensation cess rates applied on all tobacco products.

Way forward

  • The aim should be to arrest the increasing affordability of tobacco products in India and also rationalise tobacco taxation under the GST.