Despite the high rate of Good and Sales Tax to be levied on cigarettes, tobacco consumption in India may not necessarily fall, say doctors and anti-tobacco activists. This is because the effective tax rate will remain neutral and the cost of cigarettes will not rise substantially.
The tax rate for bidis, which are the most commonly consumed tobacco product in India, is yet to be decided by the GST Council, which is drafting India’s ambitious indirect tax reform.
The GST council meet on May 18 decided that a 28% GST rate will be applicable to branded cigarettes. “Briefly, the 28% GST sounds high, but that is applied to a base or the pre-tax price,” said Dr Prabhat Jha, director of the Centre for Global Health Research at St. Michael’s Hospital and University of Toronto who has studied Indian tobacco taxation closely. “That means that just the GST would raise the per stick price from Rs 4.30 [pre-tax] by Rs 1.20 to Rs 5.50. That is way, way too small.”
Dr Shekhar Salkar from National Organisation for Tobacco Eradication agreed. “There could be an increase in revenue of the government but the companies may continue to sell cigarettes at the same current price,” he said. “Cigarette manufacturing companies may gradually increase the price which may not help reduce consumption.”
Bidis, another cancer causing product like cigarettes, are yet to be taxed under GST. An estimated eight out of ten Indians who consume tobacco in India smoke bidis, said Salkar.
Salkar and his colleagues expected that the council would classify all tobacco products including bidis as demerit goods. Demerit goods are also referred as sin goods or those goods whose consumptions may have a negative effect on society. Under the GST regime, doctors expected that tobacco products would be classified as demerit goods with an additional cess levied on them taking tax rate up to 40%. However, they were not classified as demerit goods in the May 18 meeting of the GST council.
According to a news report in the Hindu Business Line, GST is expected to be 18% for bidis. “The fact that they are yet to decide shows that the council is divided about GST on bidis,” said Salkar.
Jha is calling for the government to double the excise rate plus GST. “Governments need not only high excise tax, but smart taxes, which can prevent the tobacco industry manipulation of the price,” he said. “So the price would go from Rs 4.30 pre-tax to a final price of Rs 9.50 per stick way higher than the current market price of Rs 6.60.”
Making tobacco too expensive
India has a wide spectrum of tobacco products for both smoking and smokeless or chewing tobacco. Bidi consumption is the highest among all tobacco products. In India, the nationally representative Million Death Study documented that smoking caused about a quarter of all deaths among men aged between 30 and 69 in 2010.
Many analyses like one published in April this year in the British Medical Journal showed that one of the most effective ways to reduce tobacco consumption is by levying heavy taxes on tobacco products and make them “out of reach”. The authors cited the example of France, which has seen a drastic drop in tobacco consumption after it tripled the price of cigarettes over 12 years. Consumption fell from about six cigarettes per adult per day to three.
“Doubling inflation adjusted prices would be expected to reduce consumption by at least one third,” said Dr PC Gupta, one of the authors of the analysis.
Gupta pointed to pressure from cigarette and bidi manufacturers as the main reason for government reluctance in raising tobacco taxes. “Tobacco industry is powerful in every country, much more so in India as India is either the second or the third largest producer of tobacco in the world,” he said.
According to the British Medical Journal paper, in India, even when cigarette taxes were increased in the 2017 budget, the product continued to remain affordable. The authors pointed out that though higher taxes were levied, they were well below the rate of income growth.
“The tax increase even on cigarettes have hardly compensated for inflation,” said Gupta. “Considering total taxes as proportion of retail price, India’s is much lower than high income countries and also our neighbour Bangladesh. India is slightly lower than even Pakistan.”
The same dynamics are at play even with new taxation on tobacco via GST. “Our aim was that cigarettes become so expensive that people refrain from buying them,” said Salkar.
Higher taxes are even more important as new research shows that there is no safe level of tobacco consumption. The largest-ever prospective community-based cohort study of 14,919 men across five centers in India and one each in Bangladesh and Pakistan published in Lancet in February concluded that “there is no safe threshold from the harmful effects of smoking and even low-intensity, clinically-trivial smoking is associated with respiratory impairment.”
Bidis as harmful as cigarettes
Several Indian studies have shown that bidi smoking causes lung diseases, heart diseases, cancer, vascular diseases, said Dr Pankaj Chaturvedi, head and neck cancer surgeon at Tata Memorial Hospital.
The Lancet study found that half of the 120 million tobacco smokers in India use bidis. Chaturvedi who has looked at the study closely said that there is enough research proving that “that bidis are at least as harmful as cigarettes” despite having substantially less tobacco content than cigarettes.
Doctors and researchers feel that there is not enough done to create awareness about ill-effects of tobacco consumption. “Everyone is aware that tobacco is not good but in a rather superficial manner,” said Gupta and added that most people who report that they have quit, have quit because they are already suffering from health effects and not because it is a carcinogenic.
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