Tax tobacco sky high

An Indian anomaly to remember on this No Tobacco Day is that our country does not tax cigarettes high enough and treats beedis with kid gloves.

Published: 30th May 2017 10:43 PM  |   Last Updated: 31st May 2017 08:47 PM   |  A+A-

Pall Mall cigarettes are seen after the manufacturing process in a British American Tobacco Cigarette factory. (File Photo | Reuters)

Express News Service

CHENNAI: Whenever the finance minister rises to present his budget, there is an inevitable expectation that he will raise the taxes on cigarettes. And he usually obliges, and it produces a warm glow in every heart that the battle against tobacco is being well and truly fought. But what about beedis?

Cigarettes are taxed at about 43 per cent in India, far short of the 75 per cent recommended by the World Health Organisation (WHO). And beedis attract a levy of a shockingly low 7 per cent. Considering that legal cigarettes account for only 11 per cent of tobacco consumption in India (while contributing 87 per cent of tax revenues from tobacco), how does it even make sense to treat non-cigarette products with kid gloves?

Fact is, anti-tobacco agencies have for long advocated heavy taxation of tobacco to bring down consumption. An empirical study done in 2014 by the Ministry of Health and Family Welfare found that inflation in prices of tobacco products was much below that of the wholesale price index.

Further, a WHO-Bloomberg Initiative to Reduce Tobacco Use study found that a 10 per cent increase in tobacco prices would reduce bidi consumption by 9.1 per cent and cigarette consumption by 2.6 per cent.

But conventionally, tobacco taxation in India has tended to be soft on beedis on the presumption that they are the poor man's cigarette. Now with the goods and services tax (GST) due to be implemented from July 1, the tax rate for beedis and other non-cigarette tobacco has reportedly not even been discussed, giving rise to speculation that they might be kept out of the demerit list altogether.

The demerit list is a negative list of products that will carry high taxes, to reduce their consumption. Cigarettes are in the list but beedis are not, despite the lobbying of health activists and doctors. Beedis command a market share of 85 per cent of smoked tobacco, making them the more popular form of tobacco consumption on a national scale. This presents a unique problem for India that is not seen elsewhere in the world.

Globally, developed countries tend to tax tobacco highly. But India concentrates its attention on cigarettes, while letting beedis slip under the tax net on the pretext that they operate in the unorganized sector and create rural jobs. Indeed, the beedi industry employs an estimated 50 lakh workers of which 90 per cent are women.

It is also a well-established fact that many beedi manufacturing companies have political clout and work as a lobby to ensure that health concerns are questioned and tough regulation is shot down. For instance, in 2015, a parliamentary committee that was examining proposals to increase pictorial warnings on cigarettes and beedis was put on hold after the BJP MP and beedi businessman S C Gupta put forth reservations on the efficacy of the warnings.

Anti-tobacco activists and the Ministry of Health Family Welfare call for taxation on beedis that is more than the purchasing capacity of the demography that buys it. The WHO's general advice is for 75 per cent on all tobacco products to curb consumption.

The WHO-Bloomberg report says raising taxes steeply would have a double benefit for India: better health and better revenues. The study estimates that if India increased its tax rate on bidis from from 9 per cent to 40 per cent of retail price and on cigarettes from 38 per cent to 78 per cent of retail price, 18.9 million lives would be saved. And the higher tobacco taxes would provide the government with an additional Rs 18000 crore in tax revenue.

Graphic: If taxes were raised…

Bidis

From 7% to 40% of retail price

Impact: 23 million reduction in number of smokers, and 15.5 million lives saved

Cigarettes

From 38% to 78% of retail price

Impact: 4.7 million reduction in number of smokers, and 3.4 million lives saved

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