India: Hike Sin Tax on Tobacco by Up to 40%

Source from:  Times of India 02/19/2016

Tobacco products may again attract higher taxes in the upcoming Union Budget 2016-17. Highlighting a discrepancy between the existing tobacco prices and rising income levels, the health ministry along with the World Health Organisation (WHO) and other public health groups have proposed a hike in taxes of up to 40% for all tobacco products..

Findings of a latest study, commissioned by the health ministry and WHO, showed prices of tobacco products in India have not increased substantially over time, thus making these products even cheaper than essential food items. "The relative wholesale price index (WPI) of all tobacco products (smoking and smokeless) show an increasing trend between 2005-06 to 2012-13, but this has been consistently lower than essential commodities like food items," the report 'Tobacco Taxes in India: An Empirical Analysis', based on the study, said..

However, the study covering the period from 2006 to 2013 does not take into account the substantially higher taxes imposed on cigarettes over the following two years, which are believed to have made a huge impact in terms of lowering consumption. In fact the recent National Family Health Survey-4 covering 13 states and two Union Territories, showed a decline in consumption of tobacco products over the last decade. However, health experts argue the drop in consumption is because of other contravening factors like an active awareness campaign and pictorial warnings on cigarette packs..

Though public health experts agree that taxation on tobacco products have improved since 2013, they say there is still a huge scope for increasing taxes, especially on bidis, which have largely remained untouched so far.

Building a case for higher taxes, the report points at the increasing affordability of tobacco products due to rising per capita national income. "The affordability of tobacco products has not only been rising in relation to per capita income at the aggregate level but these products have become more affordable even among the poorest households of India," said Dr K Srinath Reddy, president, Public Health Foundation of India.

According to Dr Reddy, it is essential to compare prices of tobacco products with that of essential food items to put a lens on public policy. "Public policy should be responsible for public health," he said.

As per government estimates, the total economic cost attributable to tobacco use from all diseases in the year 2011 amounted to Rs 1,04,500 crore ($22.4 billion) in India, equivalent to 1.04% of GDP.

The health ministry and WHO along with public health groups have also made specific recommendations including a tax hike indexed to inflation. The ministry has also proposed an increase in excise duty on all tobacco products as well as broadening the tax regime to include unorganized sector.

"The recommendations have been forwarded to the finance ministry," a health ministry official said. Enditem