India urged to hike tobacco taxes

| February 23, 2016

The Indian government is being urged to increase taxes on tobacco products by up to 40 percent in its budget for 2016-17, according to a story in the latest issue of the BBM Bommidala Group newsletter.

India’s Health Ministry, the World Health Organization and other public health groups are said to be calling for the increase on the basis of a recent study that indicated a discrepancy between tobacco prices and rising income levels.

“The affordability of tobacco products has not only been rising in relation to per capita income at the national level, but these products have become more affordable even among the poorest households of India,” said Dr. K. Srinath Reddy, president of the Public Health Foundation of India (PHFI).

The report has recommended also that the tax increase be indexed to inflation and that tobacco taxation be extended to the unorganized manufacturing sector.

And it has recommended doing away with tax exemptions for producers manufacturing fewer than two million bidis, and the phasing out the system of taxation based on cigarette length.

Although cigarette and tobacco taxation had been increased since 2013, the report said, there was still a huge scope for further increases, especially in relation to bidis, which had largely remained untouched.

The study, Tobacco Taxes in India: An Empirical Analysis, conducted by the Institute for Studies in Industrial Development and the (PHFI), found that tobacco products were less expensive than were essential food items.

‘The current excise and value added tax (VAT) rates are insufficient, making these products easily affordable,’ the study claimed. ‘The relative wholesale price index of all tobacco products (smoking and smokeless cigarettes, bidi, zarda/kimam/surti, paan masala and chewing tobacco) show[s] an increasing trend between 2005-06 and 2012-13, but this has been consistently lower than [that of] essential commodities like food items.’

The study said that the share of the tax burden accounted for by cigarettes and bidis had declined in recent times, corroborating the findings of the WHO report, the Global Tobacco Epidemic, 2015. In the case of cigarettes, the tax burden had gone from 55.3 percent in 2008 to 36.8 percent in 2013, and in the case of bidis the tax burden had fallen from 7.2 percent to 5.3 percent.

The tobacco industry said that the timing of the release of the findings of the study had been motivated by a desire to influence policy makers ahead of the budget.

The Tobacco Institute of India said the call for ‘the excessive taxes’ had overlooked the undesirable consequences of such a policy. ‘Cigarettes are already subject to high and discriminatory taxation, which is exerting severe pressure on the legal cigarette industry (which accounts for just 11 percent of the total tobacco consumption) leading to the unabated growth of the illegal trade, even as the overall tobacco consumption continues to shift to cheaper non-cigarette forms of tobacco products,’ it said.

Category: Breaking News

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