What is the issue?
- India is the second largest consumer and producer of tobacco-based products.
- We hence need a more targeted taxation and retail policy on tobacco products to effectively curb their use.
How are the current policies oriented?
- Thus far, a mix of pricing and taxation regimes, awareness campaigns, regulatory laws was used by governments to dissuade tobacco use.
- Despite multiple contradictory court rulings regarding the pictorial warnings on packs, the SC has presently retained the mandate for 85% space for them.
- The judgement recognized that such pictorial warning were one of the approaches for bringing about behavioural changes towards tobacco use,
- Additionally, it also stressed the lack of sufficient coherent pricing policies and taxation measures to aid the cause.
Is the taxation pattern skewed?
- World Health Organisation’s (WHO) “Global Adult Tobacco Survey” highlights India’s distinct pattern of tobacco consumption.
- The product variant structure of tobacco is complex in India as it is consumed in multiple forms like - cigarettes, bidis, chewables and khaini (smokeless).
- Notably, while cigarettes form the primary source of tobacco consumption worldwide, it accounts for only 11% of the domestic consumption.
- A key reason for this is the variable pricing dynamics for multiple forms of tobacco, which is skewed against cigarettes.
- The average unit price of a bidi or smokeless tobacco is significantly lower than of a cigarette, which makes the former popular among the poorer segments.
Has GST improved the situation?
- Under GST, all tobacco-related products have been placed in the 28% tax slab.
- Additionally, a National Calamity Contingent Duty (NCCD) and a cess charge have been imposed on cigarettes and smokeless tobacco.
- These have resulted in a considerable price increase for cigarettes, with the highest rise seen in economy packs.
- In contrast, GST has in fact precipitated a marginal price drop for small bidi and Pan Masala packs, and only a marginal rise for other sizes.
- For smokeless tobacco, the maximum price increase has been in the smallest pouch size category and marginal increase was seen in other sizes.
- Hence, it can be concluded that a rational, consistent and impactful taxation regime for tobacco hasn’t taken shape under GST, which needs pondering.
What is the way forward?
- Removal of all excise and other tax exemptions irrespective of the size of the unit and restrictions on sales of loose cigarette sticks is needed.
- As 89% consumption is non-cigarette category, taxing it further won’t produce any positive results towards reducing consumption.
- A significant rise in the taxes on bidis and smokeless tobacco is needed to narrow the gap between cigarettes and other tobacco products.
- While this will be opposed by the large number labourers involved in bidi making, safeguarding the health poor consumers should hold primacy.
- Also, nudging the workforce dependent on tobacco businesses to other sectors should be taken up with vigour.
Source: The Hindu
