Time to Rationalize on Tobacco Taxation to Safeguard Public Health

India has done commendable work in containing the Covid 19 financial crunches to the country.

The pandemic has shown that in spite of various national and state government’s policies and programmes, there is a lot to be done in improving the health infrastructure of our country through reforms in public policies, beneficial livelihoods, appropriate taxations and public policy in the long run to improve the fiscal growth of country under the leadership of Hon’ble Prime Minister Modi ji.

If we talk about one health burden which is nibbling the economy amongst the NCD burden, the cancer disease is attributed as a major cause, for which Tobacco is the main contributor. Nearly 50% of all cancers in India are tobacco related and are preventable. 28.6% of adults use tobacco in some form. i.e., 270 million adult tobacco users200 million smokeless users and 100 million smokers.

8.5% of children 13-15 years use tobacco. Economic burden of tobacco for the age group 35+ is estimated at ₹1773.4 billion (1.04% of the GDP) for the year 2017.Economic burden from bidi smoking alone for the age group 30-69 is estimated at ₹805.5 billion for the year 2017.

A rethinking is required on the current tobacco taxes regime. Now, it’s time came to rationalize the tax regime which is one of the most effective policy regimes for higher GDP. Higher taxation on Tobacco products results in higher retail prices which is one of most economical, easiest and effective ways to reduce and discourage the Tobacco consumption and initiation.

There has not been any major increase in tobacco taxes since the introduction of GST in July 2017. If we account for increase in income and inflation, the tax rate on Tabaco products has not increased much during the post-GST period making these sin products relatively affordable. India is the second largest producer and consumer of Tobacco in the world which has huge implication in terms of loss of human health/ life and in terms of government’s health care expenditure.

Therefore, it is time to reduce the affordability of tobacco products by imposing higher taxes. Adding the current GST rate, compensation cess, NCCD, and Central Excise, the total tax burden (taxes as a percentage of final tax inclusive retail price) is only about 49.3% for cigarettes, 22% for bidis and 63% for smokeless tobacco against 75% recommended by WHO which is followed by even India’s neighbours.

In it’s recent report of the Parliamentary Standing Committee on Health noted that “India has one of the lowest prices for tobacco products and there is a need to increase taxes on tobacco products”.

The Committee accordingly recommended the Government to raise taxes on tobacco and use the additional revenue for cancer prevention & awareness.

If we talk about Global Best Practices among the several public policy tools to regulate the
consumption of tobacco, increasing the excise around the world.6 Health taxes, also known as sin tax, are often used by many countries to tax is considered to be one of the most cost-effective, based on a substantial body of research from achieve this. Health taxes are excise taxes imposed on products that have a clear negative public health impact such as tobacco. The term “health taxes” pertains specifically to excise taxes.

Excise taxes, on the other hand, are uniquely discriminatory and somewhat distortionary, enabling effective targeting of negative externalities and internalities associated with tobacco use and discouraging its harmful consumption, resulting in positive socio-economic outcomes. If India enacted an excise tax escalation on tobacco products which involves 10% annual increase in excise tax, then country could potentially prevent 10 million future tobacco- related deaths and generate an extra Rs. 317 billion in revenue.

Also, according to the World Health Organization, raising the price of tobacco products through tax increases is the most effective policy to reduce tobacco use. Evidence shows that significantly increasing tobacco excise taxes and prices is the single most effective and cost-effective measure for reducing tobacco use. When tobacco becomes less affordable people use it less and youth initiation is prevented. This considerably reduces the government spending on cancer prevention.

But of course, other means of tobacco control should continue unabated till we are in a position to reduce the tobacco cancer burden by 50%. Globally this has been a success and it also gels with our Hon PM’s vision of healthy India.

I hope this article will convey the right message to the Hon Finance Minister who can work out the modalities of tax rationalization which mandates that a sin product sale needs to be limited and citizens be protected, especially children and teens who are major contributors to our economy.

This proves the point that raising Excise Duty and Calamity Duty substantially in the coming budget can fetch a handsome revenue from this selected Sin Products category of Tobacco which can be used for augmenting the medical infrastructure. The wholesale Price Index (WPI) of many commodities has gone up. The WPI of kerosene has witnessed a jump of 300%, petrol by 126%, LPG by 111% while the WPI on cigarettes witnessed a mere 16% jump making it more affordable in relative terms post 2017.

A resilient healthcare system as an outcome will emerge that complements our ‘AtmaNirbhar Bharat’ mission, which not only focuses on revival of the economy but may save the young generation from this deadly tobacco and make them healthy and atmanirbhar. Hoping that the government will think on this opportunity where it’s a “win-win situation” to boost fiscal/economic growth and utilise additional revenue by hike in tobacco tax for health schemes.

Authored By
Prof Dr. Naresh G. Shirodkar
Assistant Professor, Economics,
Dnyanprassarak Mandals College & Research Centre, Assagao, Goa


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