India: Vardhan for 50% VAT on Tobacco Products

Source from:  The Asian Age  07/08/2014

In an attempt to discourage use of tobacco products, the Union health ministry has proposed levying VAT of at least 50 per cent . In a strong letter to the states, Union health minister Harsh Vardhan has asked them to consider developing a tax policy for tobacco products to make them less affordable "progressively overtime, and in the interim, consider levying a uniform VAT of at least 50 per cent on tobacco products, including bidis.

"These steps will go a long way in discouraging tobacco use and protecting the youth and vulnerable from getting addicted to tobacco thereby improving health of citizens, says the letter. The health minister has asked the states that under the policy, " tax rates are linked to both inflation and changes in household income, so that any tax increase leads to an effective and 'real increase' in the price of tobacco products, making them less affordable over time and, thereby, reducing their consumption and prevalence".

The step gains significance as the negative relationship between price and tobacco use has been demonstrated by numerous studies. As per a study conducted in India in (2010), a I0 per cent rise in bidi prices results in a 9.2 per cent reduction in bidi consumption. Also a 10 per cent increase in cigarette prices reduces cigarette consumption by 3.4 per cent.

Its also been seen that bidis have become three-time more affordable and cigarettes have become 175 times more affordable in 2011 than they were in 1990. So far, during the last financial year, over 10 states have increased the state tax/ VAT on all tobacco products. While Rajasthan has levied a VAT of 65 per cent on all tobacco products, followed by Jammu and Kashmir (40 per cent on all tobacco products). Enditem