No representation without taxation, cried the Americans in 1750, signalling the start of their revolution. In India, there is little representation in taxation. As the Goods and Services Tax deliberations negotiate the complex warren of laws, good intentions, like the tax war on tobacco, face the danger of falling prey to populist and political compulsions. A case in point is the unregulated bidi sector, where manufacturers walk away with huge profits by paying low taxes and is one of India’s biggest generators of black money. Many bidi tycoons are powerful political leaders with crores at their command. GST gives the government an unique opportunity to correct the unequal tobacco revenue regime. In the tobacco industry, taxation is skewed in favor of bidi manufacturers since 1979 when millions of farmers were freed from paying duties. Though Chief Economic Adviser Arvind Subramanian had mooted a standard GST rate of 17-18 per cent and 12 per cent for essential goods, the committee he headed also suggested a 40 per cent tax on tobacco. Herein comes the rub.
Taxation is often used as a moral weapon by governments, both for image makeover and vote catching. For all public punishments, governments needs a villain. All over the world, no industry has a sharper pair of horns than cigarette companies. The profits of Indian cigarette makers, already in the ashtray, will plunge further after GST comes into force. The World Health Organisation reckons that 12 per cent of the world’s smokers are Indians. India is the world’s second-largest tobacco market. In 2015, there were 120 million smokers in the country, up by over 36 per cent between 1998 and 2015. However, a villain who has escaped retribution so far is the bidi industry. Tax architects prefer to ignore the fact that there are more bidi smokers in India than those who think, like Oscar Wilde that the cigarette is a perfect pleasure- of the 69 million bidi smoking population today, 48 million are exclusively tendu leaf aficionados. 750 billion to 1.2 trillion sticks of bidis are manufactured every year.
There are over 300 big time bidi players and thousands of small manufacturers. The bidi is indubitably the poor man’s cigarette. Each stick invites just 3 paise as tax for machine-made ones and 1.2 paise for manually rolled ones. Manufacturers of the latter, whose annual production volume is less than 2 million sticks, pay no tax at all. The scary part is that 98 per cent of bidis are hand rolled. In the last two decades, taxes on cigarettes have gone up over 1000 per cent in India. But bidis overall invite only 7 per cent tax on the retail price per packet; WHO suggests 75 per cent. In contrast, a pack of twenty cigarettes is taxed around 60 per cent of retail price. The All India Bidi Industry Federation pointed out that over 90 percent of all bidi makers aren’t registered with the government and hence escape taxation.
The cynical reason behind such reservation in tobacco taxation is that cigarettes have middle class appeal, and hence are a more visible target. It is easier for a government to advertise its health commitment by attacking cigarette companies, while makers of bidis and pan masala are not obliged by law to carry nightmarish depictions of cancer ravaged throats on packets. Pan masala is even glamorised by stars like Pierce Brosnan for millions of dollars. Tuberculosis and bronchial asthma are highest among bidi workers among India’s general population of patients, according to research by the Labour Ministry. 600,000 of one million tobacco related deaths are attributed to these cancer sticks. WHO studies show more Indians die from bidi smoking than from all other forms of tobacco combined.
Lost in the righteousness of political correctness that has infected the world, the real reasons behind bidi manufacturers having escaped the tax noose is political. The Federation reports that around eight million people are working as bidi rollers nationwide, which is a lot of votes. There are also over one crore unofficial bidi vendors in India, according to anti-tobacco activists. However, bidis, which account for 77 per cent of India’s total tobacco consumption contribute only around 5 per cent of excise taxes. Taxation on the bidi industry to bring them at par with cigarettes should be driven by public health concerns over political vested interests. Bidi making is the second-largest labor intensive occupation in India. Of this,75 percent workers are women. In impoverished states, entire families are hired by local small scale manufacturers, who sell the product at a huge profit to the big players. The very demographic nature of the industry tilts it in favor of the nexus of the buyer and the politically connected manufacturer.
Tax should be levied under GST on tobacco buyers who sell or manufacture all tobacco products. This will enable authorities, under GST, to track transactions making it difficult for manufacturers to escape the tax net. A research study ‘The Economics of Tobacco and Tobacco Taxation in India’ notes that “raising bidi taxes to Rs 98 per 1000 sticks would add Rs 36.9 billion to tax revenues and prevent 15.5 million current and future smokers dying prematurely. Increasing cigarette taxes to Rs 3,691 per 1000 sticks would further add Rs 146.3 billion to tax revenues and prevent 3.4 million premature deaths”.
Tobacco consumption is one of the biggest health hazards and activists are slowly winning the fight against cigarette smoking. Billion dollar cigarette multinationals are hitting back with top lobbyists to influence government policy. The bidi industry’s political clout excludes any such confrontation. Hence, the GST meeting is crucial because the government’s deadline is 1 April 2017, which is just five months away. To become law, it has to be ratified at the Winter Session of Parliament starting November 16. It is important to note that tobacco tax has to be kept uniform in order to bring about parity and raise revenues manifold. Or else, the spirit of the GST, credited as one of the Modi government’s stellar achievements, will be sending the wrong smoke signals.
The author is Editor, The Sunday Standard