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.
