Call to Up Cess on Tobacco Products to Find Disaster Remediation Revenue

Thiruvananthapuram: Public health groups along with doctors and economists are urging the Group of Ministers (GOM) in the GST Council to increase cess on tobacco products for raising the much needed disaster remediation revenue.

Appreciating the leadership and vision of the GST Council to help Kerala raise funds for rehabilitation of its people affected by the recent floods, the group is suggesting, raising cess on tobacco products to address the crisis facing the citizens of Kerala.

Imposing cess on all tobacco products to raise revenue for disaster relief is a win-win as it will save lives by reducing consumption across India and save lives affected by the natural calamity. Global experience around the world has shown that even while such a tax increase will decrease use, government revenue will increase.

“Imposing additional cess on all tobacco products, including bidis, will be a huge win for public health and revenue generation. This move will provide much needed relief to the people of Kerala while motivating millions of tobacco users to quit and preventing youngsters from initiating tobacco use,”said Bhavna B Mukhopadhyay, Chief Executive, Voluntary Health Association of India.

WHO recommends that countries impose tobacco excise taxes that amount to at least 75% or more of retail price to achieve the dual objective of reducing tobacco use and increasing government revenue.The overall tax rate on all tobacco products in India is still low very compared to other middle-income countries including those in South Asia.

In spite of industry claims to the contrary, GST has made no significant increase in the tax burden of tobacco products, especially cigarettes and has in fact made all products more affordable. Tax burden on bidis post-GST is only 22% compared to 53% for cigarettes and about 60% for smokeless tobacco. All of these are well below the WHO recommended rate of 75%.

It is critical that the 28% GST rate category be retained for demerit/sin goods such as tobacco. This serves two purposes, as it firstly sends out a strong public health message discouraging the consumption of sin goods. Secondly, having a separate sin tax category decreases the pressure on the other three rate bands which are applicable to essential commodities allowing the government to have a relatively lower standard GST rates for those items while still maintaining a revenue neutral position. Since tobacco products are relatively less price elastic, a high GST rate on them would not lead to loss of revenue but instead increase the revenue.

According to Dr Rijo John, Economist & Health Policy Analyst, “Compensation cess constitutes more than two thirds of the total tax revenue from cigarettes. As these cesses were not revised for more than a year, cigarettes have become much more affordable compared to the time GST was implemented and it warrants significant upward revision of cess rates applied on cigarettes.’’

Unfortunately, taxation levels on bidis have remained low based on the arguments that bidis are a poor man’s pleasure and higher taxation will affect the livelihood of millions who depend on the trade for their sustenance. Bidis contribute to the majority of the 10 lakh deaths in India every year as well as the staggering economic burden caused by tobacco use and tobacco related diseases.

“There is ample evidence about bidis being the killer and not the pleasure of the poor. It should be made unaffordable for the poor to save them from a lifetime of misery and suffering”, says Dr. Harit Chaturvedi, Chairman, Surgical Oncology, Max Health Care.

Since tobacco taxes are particularly effective in reducing tobacco use among vulnerable populations, higher taxes on bidis will protect India’s weakest strata. It is thus ironical that bidis unlike cigarettes is not classified as a “sin” product under GST even though it is causing health and economic harms to millions of poor Indians.

The total economic costs attributable to bidi smoking from all diseases and deaths in the year 2017 for persons aged 30-69 years amounted to RS 805.5 billion (USD 12.4 billion) while the excise tax revenue from bidi was only RS 4.2 billion in 2017 which is only 0.5% of this costs.

According to Dr Rijo John,“Apart from the public health rationale for curbing bidi smoking among 72 million bidi smokers in India, there is a strong economic rationale for imposing a compensation cess on bidis as the economic costs from bidis are gigantic. Imposing a compensation cess on bidis would significantly increase the compensation cess pool for the government and also bring down bidi smoking.”

In their appeals to GOM members, public health groups have stated that it is critical from a public health and tax administration perspective to have all tobacco products taxed at the same levels across India. This will also prevent any undue advantages gained from inter-state smuggling of tobacco products based on differential pricing amongst states. In order to maximize the benefits of the new GST regime for public health and disaster relief, it is critical that tobacco cess increases be imposed pan-India.

By Manoj

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