Smoking is particularly harmful now since it attacks the lungs and hence heightens the risks of infection from coronavirus.

By Dr Govind Bhattacharjee

Smoking kills no less than 8 million people worldwide every year and 1.2 million in India where it accounts for 9.5 percent of all deaths. The most common way tobacco kills is through cardiovascular diseases (CVD) which account for 48 percent of all deaths; about 16 percent of these, or nearly 5 lakhs, can be attributed solely to tobacco use. India became a signatory to the WHO Framework Convention on Tobacco Control in 2005 and short of putting a blanket ban on its production like Bhutan had done, implemented various measures through legislation, like banning smoking in all public places including workplace, prohibiting its promotion through advertising, increasing the size of health warnings in the tobacco packages, banning the use of e-cigarettes, etc. India is the second largest producer and consumer of tobacco in the world after China with 35 percent prevalence of tobacco use among adults above 15 years of age, thus exposing some 267 million people to the risk of premature death and other health complications. The economic cost of tobacco-attributable morbidity and mortality is enormous – a 2011 report estimated this at Rs 1.04 lakh crore (1.16 percent of GDP). Smoking is particularly harmful now since it attacks the lungs and hence heightens the risks of infection from coronavirus.

As Adam Smith had relied in 1776, tobacco is a sin good, and taxing the sin goods is not only an effective way to curtail tobacco use, especially among youth and low-income people, but also to generate revenue for the government. Since over 80 percent of the 1.3 billion tobacco users worldwide live in low- and middle-income countries which witness the highest toll in tobacco-related illnesses and death, such taxes can yield substantial revenue and improve public health. The World Health Organisation (WHO) estimates that an increase of tobacco prices by 10 percent can reduce consumption by 4 to 5 percent in high and low income countries respectively and that for taxation to be effective, tax increases must push the tobacco prices beyond the growth in income. It recommends that taxes must constitute at least 75 percent of the final tobacco price to be effective in curtailing tobacco use. In India, however, taxes constitute only 64 percent for cigarettes, 81 percent for smokeless tobacco and a pitiable 22 percent for beedis, which are much more harmful and smoked mostly by the poor rural folks, whose numbers are almost double those of cigarette-smokers. No government dares to tax beedis steeply, for fear of alienating a precious vote bank.

All tobacco products — cigarettes, beedis and smokeless tobacco — currently attract the highest GST rate of 28 percent. Smokeless tobacco and cigarettes additionally attract compensation cess up to 36 percent depending on the length and type of cigarettes. Chapter 24 of the HSN/SAC Code prescribes the rates of taxes and cess on various tobacco products which may range up to 290 percent in addition to GST. The National Calamity Contingent duty (NCCD) which applied on tobacco products before the GST continues to apply post-GST as well; it was increased substantially in the current budget, but beedis was spared. GST after its launch in 2017 was more or less tax neutral to the tobacco products, but even with all these taxes since imposed, their total effect on the final price of tobacco products is only marginal, less than 10 percent, hardly an incentive to reduce tobacco consumption. The revenues collected from all these taxes increased from Rs 15,286 crore in 2010-11 to Rs 34,834 crore in 2018-19.

Health advocacy groups have been demanding the imposition of a steep special Covid-19 cess on all tobacco products before the GST Council. Apart from curbing the consumption of tobacco, the additional revenues thus raised would be a boon to fight the pandemic in the current highly stressed fiscal situation of the country. But the expectations are yet to be met by the Council. Raising the cess on beedis and other tobacco products in line with the alcohol cess imposed by different state governments could raise as much as Rs 50,000 crore, or 29 percent of the budgetary outgo of Rs 1.7 lakh crore on account of the stimulus package announced by the Government to provide succor to the affected and revive the economy. The revenue will be a boon given the bleak economic numbers facing us, with the Q-1 (Apr-Jun) fiscal deficit already having reached 83 of the year’s target and retail inflation nearing 7 percent, breaching the 6 percent target of the RBI. This will provide the much-needed additional tax revenue while nudging millions of smokers to quit, besides preventing the youngsters from initiation. It is also imperative not to spare the beedis but subject them to the cess like all other tobacco products, in conformity with WHO guidelines for bringing uniformity in tobacco taxation. This will undoubtedly send a strong public health message that all tobacco products are harmful and to be shunned.

The columnist is the Former Director General, Office of the Comptroller & Auditor General of India, and an academician.