Revenues from Tobacco Taxation can be a major contributor to India’s five Trillion Dollar Economy
Guwahati,Rongili Barta – Eminent Economists from across the country are urging the Government to increase excise duty on all tobacco products in the Union Budget of 2023-24 to generate additional revenue. In their appeals to the Finance Ministry, they are urging to increase excise duty on cigarettes, bidis and smokeless tobacco. According to these experts if India has to become a five Trillion Dollar Economy, then increased Tobacco Taxation can be a major contributor. In 2019, Honourable Prime Minister Narendra Modi envisioned to make India a $5 trillion economy and global powerhouse by 2024-25. The timeline for India becoming a $5 trillion dollar economy must be postponed because India has lost two years of growth. The $5 trillion dollar target can be achieved by 2026-27. “Since 1950s India's Growth has been driven by investment. However, at given levels of capital output ratio investment on its own will be an insufficient engine to achieve the $5 Trillion economy objective. The Gap will have to be bridged with options like TFP (total factor productivity) and enhanced demographic dividend. This obviously shifts focus towards human capital and health where tobacco use accounts for 22% compromise directly and 78% indirectly, killing over 13 Lac people annually and pushing over 1 crore into poverty. If India has to become a five Trillion Dollar Economy then increased Tobacco Taxation is an idea whose time has come”. According to a recent study, cigarettes, bidis and smokeless tobacco have become increasingly affordable over the past 10 years. There has not been any major increase in tobacco taxes since the introduction of GST in July 2017. 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 52.7% for cigarettes, 22% for bidis and 63.8% for smokeless tobacco. WHO recommends a tax burden of at least 75% of retail price for all tobacco products. The existing tax burden on all tobacco products is far lower than this. Consultations with economists and public health experts at national and state level (Uttar Pradesh Gujarat, Assam, Himachal Pradesh, Goa), saw the economists agree that increasing excise on all tobacco products can be a very effective policy measure to address the immediate need to raise revenue by the central government. It will be a winning proposition for generating revenue and reducing tobacco use and related diseases. ‘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 Tabaco consumption and initiation. If we account for increase in income and inflation, the tax rate on Tobacco products has not increased much during the post-GST period making these sin products relatively affordable. India is the second largest consumer of Tobacco in the World which has huge implication in terms of loss of human health/ life and in terms of health care expenditure. Therefore it is time to reduce the affordability of tobacco products by imposing higher taxes’, Dr. Mousumi Borah, Associate Professor, Arya Vidyapeeth College, Guwahati. The Parliament Standing Committee on Health recently submitted a pertinent and comprehensive report on Cancer Care Plan and Management in which it undertook a detailed study of the causes of Cancer in India and noted with concern that in India, “the highest number of lives lost is due to oral cancer caused by tobacco, followed by cancer of the lungs, esophagus and stomach.” It also noted that tobacco use is one of the most prominent risk factors associated with cancer. In view of these alarming observations, the Committee has 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 recommends the Government to raise taxes on tobacco and utilize the additional revenue gained for cancer prevention and awareness. “Lack of tax increase on tobacco products for more than five years in a row could become a major impediment to India’s efforts to become a 5 trillion economy as the annual economic burden from tobacco and second-hand smoking together dents a hole equivalent to 1.4% of our GDP. While GST brought in uniform tax rates across the country, the lack of tax increase on sin products such as tobacco ever since its introduction is taking the sheen off of an indirect tax reform that has much to offer otherwise and is, instead, hurting India’s public health interests”, Dr Rijo John, health economist and adjunct professor, Rajagiri College of Social Sciences, Kochi. The share of excise tax in the total tobacco taxes for each tobacco product has become nearly insignicant post GST. It decreased from 54% to 8% for cigarettes, 17% to 1% for bidis, and 59% to 11% for smokeless tobacco products from pre- GST to post GST. Excise tax and VAT were periodically increased in the pre GST regime which led to a 17.3% relative reduction in tobacco use among adults between 2009-2016. There have been no significant revisions on tobacco taxes under the GST regime which has made tobacco products even more affordable. Increase in tobacco taxes can have positive public health outcomes. A price increase of 10% would reduce smoking by about 4% in high income countries and by about 8% in low and middle income countries. India has the second largest number (268 million) of tobacco users in the world and of these 13 lakhs die every year from tobacco related diseases. Nearly 27% of all cancers in India are due to tobacco. The annual economic costs from all diseases and deaths attributable to tobacco use is estimated to be Rupees 177,341 crores in 2017-18 amounting to 1% of India’s GDP.