The Telegraph
Monday , June 23 , 2014
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Govt weighs higher taxes on tobacco

Checks & balances

New Delhi, June 22: The finance ministry is considering a proposal to raise taxes on cigarettes and chewing tobacco to jack up revenues and generate health consciousness.

“Tobacco taxes are always a good way of raising revenues while accruing health benefits, and we are looking at the possibility of increasing taxes not only on cigarettes, but also on chewing tobacco, bidis etc,” officials said.

In India, the average tax on a pack of cigarettes is 43 per cent, lower than a levy of 65-80 per cent recommended by the World Health Organisation.

Besides, taxes are based on the length of a cigarette, which allows companies to avoid higher taxes by simply changing the length of the stick.

Hand-rolled bidis carry a small tax, while the machine-rolled bidis are taxed at two-and-a-half times the rate of hand-rolled ones.

The health ministry has sought higher taxes on bidis and cigarettes, regardless of the length. While this will raise howls of protests from the bidi makers of Andhra Pradesh and Bengal, officials said the existing taxes had not reduced bidi smoking, common among the poor.

Makers of pan masala, gutka and other chewing tobacco had also been escaping tax by reducing the size of their pouches as the taxation on such products are on ad valorem or percentage of price basis. Officials said the levy would be linked to the capacity of a gutka or a pan masala factory and not to the size or the price of the pouch.

Officials said the moves could not only bring in an additional Rs 4,000-5000 crore for the government but also “save lives”.

An ADB study estimated an increase in tobacco prices by 50 per cent would help to avoid over 4 million tobacco-related deaths in the country. India has among the lowest taxation rates on tobacco in the Asia-Pacific.

India has around 44.5 million male and 3.26 million female smokers. Most lives lost because of tobacco-related diseases are at the productive age of 30-69 years, according to the ADB research paper.

The tax is likely to go to the general exchequer and not to any specific fund for healthcare, though there have been demands in the past for the “sin tax” on tobacco and liquor being directly used to pay for public healthcare. A sin tax is a specific levy to discourage the consumption of certain products.

The government wants to increase core public health spending gradually to 2 per cent of GDP, with wider health coverage and cost-free access to essential medicines.