‘Compensation Cess on Tobacco Products can generate revenue for vaccinations’



27 May 2021


Consumer Voice, India’s leading consumer rights organisation has  urged the GST Council to increase compensation cess on all tobacco products in Punjab and Haryana to generate additional revenue for the government.

In their appeal to the GST council before its meeting on May 28, it has urged it to consider an extraordinary measure of levying compensation cess on all tobacco products to get additional revenues. This tax revenue from tobacco could significantly contribute to the increased need for resources during the pandemic including vaccinations and augmenting the health infrastructure to prepare for a possible third wave.

According to Mr Ashim Sanyal, COO of Consumer VoiceUnprecedented financial resources will be needed for the country to recover from the economic shock COVID-19 has created. Increasing compensation cess on all tobacco products will be a win-win proposition as it will bring in substantial revenue for the Government while motivating millions of tobacco users to quit and preventing youngsters from initiating tobacco use”.

There is growing evidence that smoking and smokeless tobacco increases risk for severe Covid 19 infection. Smoking worsens lung function and reduces immunity. Tobacco users who develop Covid infection have more complications and greater risk of fatality. It is urgent to increase taxes on all tobacco products to reduce their affordability & consumption and limit the increasing health and fatal damages and vulnerability to COVID 19 infection says Dr.Shekhar Salkar, Renowned Oncologist, Manipal Hospital, Goa

The 2nd wave of COVID-19 has been a major shock to the country, and it far surpassed the first wave. The Government of India had already announced various fiscal and economic stimulus measures to boost the economy and compensate people affected from the negative economic shock from the pandemic when the first wave hit India.  The financial needs for the exchequer continue to grow on the face of the vast resources needed for the vaccination drive and for the preparation for a possible third wave of the pandemic, he said.

The GST revenue receipts of both central and states governments have been severely affected due to the COVID-19 pandemic and, as a result, the central government has not been able to distribute the compensation cess dues to different state governments as guaranteed under the GST. Increasing the existing compensation cess on cigarettes and smokeless tobacco products and levying compensation cess on bidis can be a very effective policy measure to address the immediate need to raise revenue by the central government to compensate state governments for their respective GST revenue shortfalls during the pandemic time. It will be a winning proposition for generating revenue and reducing tobacco use and related diseases as well as COVID related comorbidities.

There has not been any major increase in tobacco taxes since the introduction of GST in July 2017 and all tobacco products have become more affordable over the past three years. The total tax burden (taxes as a percentage of final tax inclusive retail price) is only about 52.7% for cigarettes, 22% for bidis and 63.8% for smokeless tobacco. This is much lower than the World Health Organization (WHO) recommended tax burden of at least 75% of retail price for all tobacco products.


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