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Hike Excise Duty on Tobacco Products

Public health groups, along with economists and doctors, have urged the government to increase excise duty on all tobacco products in Budget 2022-23 in order to address the immediate need to raise revenue.

The government has set up an expert group led by a senior health ministry official to prepare a comprehensive tax policy proposal covering all tobacco products from a public health perspective.

The nine-member panel is led by Vikas Sheel, additional secretary in the health ministry, and includes representatives of the Goods and Services Tax (GST) Council, NITI Aayog, Central Board of Indirect Taxes and Customs (CBIC), the revenue department’s tax research unit, the World Health Organization’s (WHO) country office for India, and the National Institute of Public Finance and Policy (NIPFP). The mandate of the group includes analysing the current tax structure of all forms of tobacco, including smokeless tobacco, and suggesting various tax rate models for the preparation of the FY23 and future Union budgets. The idea is to have a roadmap for reducing tobacco demand according to WHO’s plans.

Tobacco products are in the 28% GST slab, other than for tobacco leaves, which are taxed at 5%. Tobacco and its various forms are also subject to a heavy burden of cess, given that they are seen as sin goods. The cess is 65% on unmanufactured tobacco bearing a brand name. For cigars, it is 21% or ₹4,170 per 1,000, whichever is higher. The government also uses pictures of cancer patients on the packages of cigarettes to discourage their use. Public health experts argue that the financial needs of the exchequer continue to grow in the face of vast resources being needed for the covid-19 vaccination drive and for the preparation for a possible third wave of the pandemic.

GST revenue receipts of both central and states governments have been severely hit by the pandemic, which in turn has meant that the Centre has not been able to distribute compensation cess dues to different state governments as guaranteed under the GST framework.

However, there has not been any major increase in tax on tobacco products since the introduction of GST in July 2017. The tax as a percentage of the tax-inclusive retail price is about 52.7% for cigarettes, 22% for bidis, and 63.8% for smokeless tobacco. This is much lower than the WHO recommended tax burden of at least 75% of retail price for all tobacco products, say public health experts who advocate higher taxes on tobacco products. Raising the price of tobacco products through tax increases is the most effective policy to reduce tobacco use, according to WHO. Higher tobacco prices decrease affordability, encourage users to quit, reduce initiation among non-users, and reduce the quantity consumed among continuing users, the health experts said.

Increasing existing compensation cess on cigarettes and smokeless tobacco products and levying compensation cess on bidis can be a very effective policy measure to address the immediate need to raise revenue by the central government to compensate states for their respective GST revenue shortfalls during the pandemic, the experts said. It could be a winning proposition for generating revenue and reducing tobacco use and related diseases as well as covid-related co-morbidities, they said.

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