20 June 2019
Public health groups along with doctors and economists have urged the members of the GST Council to retain tobacco products as demerit goods at the highest tax rate of 28% plus cess under GST. Taxing tobacco products at 28% rate will not only discourage its consumption, but will also increase revenue collection for the government.
Bidis contribute to the majority of the 10 lakh deaths in India every year as well as the staggering economic burden caused by tobacco use and tobacco related diseases. It has therefore been requested that Bidis, like cigarettes and smokeless tobacco also be classified as a demerit good and taxed at 28% plus cess. “By categorizing cigarettes and smokeless tobacco as demerit goods under GST and levying the highest GST rate of 28% plus cess on these, the Government of India has prevented millions of youth from tobacco initiation and lifelong addiction. It is critical that these tobacco products are retained in the 28% plus cess rate category of GST to discourage consumption and encourage millions of tobacco users to quit. Increase in tobacco taxation will be beneficial for our country’s economy as well as to address public health concerns related to tobacco thus making it a win-win situation”, Surinder Verma, Chairman, Citizens Awareness Group.
WHO recommends that countries impose tobacco excise taxes that amount to at least 75% or more of retail price to achieve the dual objective of reducing tobacco use and increasing government revenue. The overall tax rate on all tobacco products in India is still low very compared to other middle-income countries including those in South Asia. In spite of industry claims to the contrary, GST has made no significant increase in the tax burden of tobacco products, especially cigarettes and has in fact made all products more affordable. Tax burden on bidis post-GST is only 22% compared to 53% for cigarettes and about 60% for smokeless tobacco. All of these are well below the WHO recommended rate of 75%.
According to Dr Rijo John, Economist & Health Policy Analyst, India has witnessed decline in tobacco prevalence mainly due to the relatively higher taxation. However, it has been nearly two years since the tax on tobacco has changed under the GST, making tobacco products more affordable. It is high time the GST council raises specific cess on these to sustain the prevalence reduction, as witnessed between the two rounds of global adult tobacco surveys.
There is ample evidence about bidis being the killer and not the pleasure of the poor. It should be made unaffordable for the poor to save them from a lifetime of misery and suffering”, says Dr. S.M. Bose, PGI Retired.
India has the second largest number of tobacco users (268 million or 28.6% of all adults in India) in the world – of these at least 12 lakh die every year from tobacco related diseases. The total direct and indirect cost of diseases attributable to tobacco use was a staggering Rupees 1.04 lakh crore ($17 billion) in 2011 or 1.16% of India’s GDP.