India Needs to Hike Tobacco Taxes

Source from:  The Times of India 02/22/2016

Prices of tobacco products in India have not increased substantially over a period, making them easily affordable and even cheaper than essential food items, says a study, recommending a substantial increase in taxes on all types of tobacco products.

Tobacco consumption in the country is high with around 35% of India's population consuming some kind of tobacco product.

The study, 'Tobacco Taxes in India: An Empirical Analysis', by the health ministry rnd World Health Organization (WHO) India, was conducted by the Institute for Studies in Industrial Development and Public Health Foundation of India, for 2006 to 2013, and includes cigarette, bidi and smokeless tobacco (zarda /kimam/surti, paan masala and chewing tobacco) products. It corroborates a recent WHO Report on the Global Tobacco Epidemic 2015, which indicates cigarettes have become more affordable over 2008-14.

As against this, inflation for food items, including cereals, pulses and other daily consumables, has been higher over the same period (2006-13). The study recommends that tax on all type of tobacco products should be increased substantially, and tobacco tax regime broadened to include unorganized sector manufacturing under the tax net. It also suggests tax exemption on production of less than two million bidis should be eliminated, and tax slabs on cigarettes based on length be eliminated in a phased manner.

It reveals that existing excise and value added tax (VAT) rates are insufficient to increase prices of tobacco products, making them easily affordable. The share of tax burden has also declined for cigarettes from 55.3% in 2008 to 36.8 % in 2013, while for bidis from 7.2% in 2011 to 5.3% in 2013.

Highlighting that tobacco taxation as a fiscal policy is a win-win for both public health as well as revenue generation, Dr Henk Bekedam, WHO Representative for India said, "A comprehensive tax policy leads to reduction in tobacco use especially among young people and at the same time provides increased revenues to the government."

It has also been seen that affordability, in relation to income, of tobacco products is increasing at the national level, except for recent years. This is true even for the poorest households in the country.

According to Article 6 of the WHO Framework Convention on Tobacco Control (WHO FCTC), to which India is a party, prices of tobacco products must be increased periodically to make them inflation-adjusted, and there should be a uniform increase in tax rates across products. The tax burden on tobacco products is also not in line with the WHO FCTC recommendations, which says, excise levies should account for at least 70% of retail prices of tobacco products.

"Tobacco taxation policy is the most cost effective strategy for tobacco control and has the ability to affect consumption, prevalence and affordability. Higher prices of tobacco products can promote cessation and prevent initiation among young people. This study reiterates the need for development of comprehensive tax policy for tobacco products to make them progressively less affordable over time by indexing tax increases on tobacco products to inflation. A simplified tax structure that uniformly taxes all tobacco products from the organized and unorganized sectors will have the greatest public health benefit for both consumers and the government," K Srinath Reddy president Public Health Foundation of India, said.

Earlier, a health ministry report had estimated the total economic cost attributable to tobacco use from all diseases in 2011 amounted to Rs 1,04,500 crore in India, equivalent to 1.04% of the country's gross domestic product. Enditem