Various Bodies Seek Hike In Proposed Sin Tax On Tobacco Items

The 26 percent 'sin' tax on tobacco products proposed by GST Council will "negatively" impact revenue and public health, and anything below 40 percent will make those items more affordable to the youth and other vulnerable populations, various bodies said on Tuesday.

With India having the world's second largest number of tobacco users – 275 million or 35 percent of all adults in the country – and of these at least 1 million dying every year from tobacco related diseases, the bodies said there is an "overarching consensus" that tobacco be taxed at the highest rate.

The bodies in a statement said tobacco be taxed at the highest rate under GST as recommended in the Chief Economic Advisor report, which seeks a 40 percent GST sin rate on all tobacco products including cigarettes, bidis and chewing tobacco.

They said the GST council meeting that concluded on October 20 proposed a much lower 26 percent GST sin rate which will have "significant impact on the revenue as well as the health of our nation, both of which require serious consideration".

"Compared to a GST 'Sin' rate of 40 percent, imposing a 26 percent 'Sin' rate will reduce total tobacco tax revenue by almost one fifth (17 percent or roughly Rs 10,510 crores) even if the government retains the current excise on tobacco products post GST," said Rijo John, Assistant Professor, IIT Jodhpur.

"Clearly, 26 per cent 'Sin' rate will be well below what is required to maintain a revenue neutral position for tobacco and will significantly reduce tax burden on all tobacco products since the existing average VAT rates themselves are higher than 26 per cent on most tobacco products," John said.

Tobacco-use imposes enormous health and economic costs on the country. The total direct and indirect cost of diseases attributable to tobacco use was a staggering Rs 1.04 lakh crore ($17 billion) in 2011 or 1.16 percent of India's GDP.

"A much lower GST rate will make all tobacco products even more affordable to the youth and other vulnerable populations, leading to the impact of the tobacco epidemic becoming more severe driving up healthcare costs and resulting in productivity losses.

"This will certainly lead to an increased number of fatalities per year, which is not a good news for any country.

I firmly believe and urge that the government should tax tobacco products at very high rate to ensure it discourages mass consumption," said Pankaj Chaturvedi, Oncologist at Tata Memorial Hospital, Mumbai.

Approximately 48 percent men and 20 percent women consume tobacco products (35 percent of the adult population overall). Of these at least 10 lakh are dying each year from tobacco related diseases.