United call for highest tax rate on all tobacco products in new GST regime

Proposed 26 per cent sin tax rate on tobacco to negatively impact revenue and public health 

Ahead of the crucial meeting of the GST Council on Thursday, November 3, a cohort of victims, doctors and economists have banded together to appeal to the Council for the inclusion of all tobacco products in the highest tax slab.

The proposed ‘sin tax’ rate of 26 per cent would be detrimental to both public health and the national economy, they argue. The proposed rates would make tobacco products more affordable, thereby boosting consumption and leading to an increase in the incidence of grave, even terminal, conditions, including cardiovascular diseases and cancers. In addition, they point out that the revenue from tobacco products would be significantly reduced.

Saju, a tobacco-induced oral cancer victim, says that the prices of all tobacco products should be kept high to both dissuade current users and prevent the initiation of new users. “I smoked my first cigarette in my early 20s. Gradually, I was drawn to smoking and I would smoke three-four cigarettes in addition to using smokeless tobacco products,” he said.

Tobacco use made Saju an oral cancer patient at the young age of 30. He was treated with chemotherapy, surgery and radiation at Vandanam Medical College, Alappuzha, and is on regular follow-ups. The treatment spread over a year cost around Rs three lakh.

“When I think back, I ask myself why I spent my hard-earned money on tobacco products. It gave my family and me only suffering and trauma. No one should have to undergo the pain and stress I suffered,” said Saju, who is now in his early 30s.

Dr Tiny Nair, Head of the Department of Cardiology, PRS Hospital, has long campaigned for imposing the highest tax rates on tobacco products. He said, “Taxing tobacco products is a proven way to reduce consumption as WHO studies have shown. A lower GST rate can accentuate the tobacco epidemic, driving up healthcare costs. The GST Council should tax all smoking and smokeless tobacco products at the highest rate. This way, irreplaceable lives can be safeguarded from untimely morbidity and mortality.”

According to Dr Rijo John, Assistant Professor, IIT Jodhpur, “Compared to a GST sin tax rate of 40 per cent, imposing a 26 per cent sin rate would reduce total tobacco tax revenue by almost one-fifth (17 per cent, or roughly Rs 10,510 crore) even if the government retains the current excise on tobacco products post GST.”

“Clearly, a 26 per cent sin rate will be well below the rate 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,” added Dr John, a reputed researcher on tobacco taxation.

The rationale for a sin tax is two-fold, to pay for the damage caused to society by products like tobacco and second, to reduce usage by increasing price.  A 40 per cent sin tax rate combined with the existing excise tax and top-up state taxes on tobacco appears to be the best scenario for public health and revenue.