[Editorial] How do the price and taxation of tobacco matter?

tobacco
Quick revision mind map

Context

Tobacco as a silent killer

  • Tobacco is a silent killer in our midst that kills an estimated 1.35 million Indians every year.

What the editorial is about?

  • The need to stop the increasing affordability of tobacco items and rationalize their taxation under GST.

The cost to be incurred by the tobacco epidemic

  • It is the use of tobacco as a result of which more than 3,500 Indians die every single day, as estimated by scientific studies.
  • It also comes at a heavy cost: an annual economic burden of more than 1% of India’s Gross Domestic Product (GDP).
  • Although not a communicable disease like SARS-CoV-2, the tobacco epidemic — as the World Health Organization characterises it — has some definitive solutions that can reduce the death toll.

How do the price and taxation of tobacco matter?

Price

  • Research from many countries around the world including India shows that a price increase induces people to quit or reduce tobacco use as well as discourages non-users from getting into the habit of tobacco use.

Taxation

  • There is overwhelming consensus within the research community that taxation is one of the most cost-effective measures to reduce the demand for tobacco products.
  • There has been no significant tax increase on any tobacco product for four years in a row.

Absence of a tax increase

  • It is quite unlike the pre-GST years where the Union government and many State governments used to effect regular tax increases on tobacco products.
  • As peer-reviewed studies show, the lack of tax increase over these years has made all tobacco products increasingly more affordable.
  • The absence of a tax increase on tobacco has the potential to reverse the reduction in tobacco use prevalence that India saw during the last decade and now push more people into harm’s way.
Tax revenues
  • The absence of a tax increase also means foregone tax revenues for the Government.

Some considerations

Union budget exercise was an excellent opportunity

  • The Union Budget 2022-23 was an excellent opportunity for the Government of India to buck this trend (of not effecting a significant price increase for the longest time in a row) and significantly increase either excise duties or NCCDs on tobacco products.

GST Council should act

  • The Goods and Services Tax (GST) Council could well raise either the GST rate or the compensation cess levied on tobacco products especially when the Government is looking to rationalize GST rates and increase them for certain items.
  • For example, there is absolutely no public health rationale why a very harmful product such as the bidi does not have a cess levied on it under the GST while all other tobacco products attract a cess.
  • GST Council meetings must strive to keep public health ahead of the interests of the tobacco industry and significantly increase either the GST rates or the GST compensation cess rates applied on all tobacco products.

Practice Question for Mains

  1. The Government must stop the increasing affordability of tobacco items and rationalize their taxation under GST. Elaborate. (250 Words, 15 Marks)

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