Health Meter

New Delhi, Jan. 3: Liberalised trade with South Asian countries has entailed increased smuggling of tobacco products into India, said a study conducted by credit rating agency Icra Ltd.

“Recent estimates suggests around 4.5 billion cigarettes worth Rs 16 billion are being smuggled into India. The liberalisation of trade between Saarc countries has further exacerbated the problem by providing another channel of entry for smuggled cigarettes into the country,” the study noted.

It suggested that prominent marking of tax stamps, local-language warning on packages and aggressive enforcement of penalties would help in arresting the inflow of smuggled tobacco products into India.

On the pricing of tobacco products, the Icra study pointed out that while cigarettes are taxed at increasingly higher rates (around 55 per cent of the average price), as much as 85 per cent tobacco consumption is either lightly or not taxed.

“Bidis, for example, are consumed by people in the lower income brackets. But these were not taxed till early 1990s. Even at present they are taxed only lightly. Non-filter cigarettes, too, are taxed less than filter cigarettes,” it pointed out.

“The government policy of keeping the prices of certain tobacco products cheaper for low income groups also ignores the potential of higher occurrences of tobacco-related diseases among these people,” the study said.

“Though the objective is to discourage tobacco consumption, the existing tax base and rate structure is skewed and not in alignment with production and consumption patterns. At the same time, macro considerations, such as employment and income generation, also hinder serious efforts towards such an alignment,” the study observed.

Cigarette smokers constitute about 13 to 15 per cent of tobacco users in the country. “One of the arguments usually put forward against taxing non-cigarette tobacco is that these are mainly used by the poor, hence increasing taxes on bidis would amount to taxing the poor more. But estimates indicate that a tax-induced increase in prices of bidis would reduce consumption by an almost equal proportion,” it said.

As in many parts of the world, the rationale for high tobacco taxation in Indian seems to be fiscal ? to maximise excise collection on a demand-inelastic product, rather than control its use.