Friday 28 April 2017

Taxation on Tobacco in India - Tool for Tobacco Control

Tobacco is the major factor causing non-communicable fatal diseases in India. Tobacco consumption in India is unique and complex with various forms of smoke and smokeless tobacco. Its use is long-standing and is ingrained among Indians from varying cultural backgrounds. Also its social acceptability poses great challenges for the regulation of tobacco products and the enforcement of tobacco legislation. However, there are other barriers as well that prevent the cessation of this practice such as poverty, illiteracy, lack of awareness, aggressive marketing strategies of giant tobacco companies targeting vulnerable groups, a growing economy and a less than optimal implementation of provisions for tobacco cessation by government agencies. This article focuses on the current state of the Indian population addicted to tobacco use and the various methods used to improve cessation, with a focus primarily on taxation as a crucial measure that encourages abstinence.

Tobacco consumption is the single most important avoidable risk factor in the growth of non-communicable diseases in India (Jha and Chaloupka 1999). Tobacco-accounts for 12% to 25% of the deaths among men in India (Gajalakshmi et al 2003; Gupta et al 2005; Jha et al 2008); one half of tobacco-related deaths occur between the ages of 35 and 69 years—the most economically productive period (WHO 2002).

Tobacco Consumption in India
India is the third largest producer of tobacco and the second highest consumer of tobacco products. There is a broad spectrum of tobacco products, aimed at different socio-economic and demographic categories. Unlike other countries, India is unique in the use of multiple non-cigarette preparations such as beedi (an indigenous form of combustible tobacco) and the extensive variety of oral tobacco products (chewing, quid, and dentifrices). Beedis account for 85% of smoked tobacco (John et al 2010), however, there has been growth in the number of cigarette smokers in the past decade (Joseph 2011) due to a rise in disposable incomes and an increased affordability. Studies have also shown that manufactured cigarettes are displacing beedis (Jha et al 2011). Prevalence estimates vary, with most estimates obtained from the National Family Health Survey–3 (NFHS–3) of 2005–06.

Approximately 10% of the world’s tobacco smokers live in India (WHO 2008). Between the ages of 15 and 49 years, 57% of males and 11% of females consume tobacco in a smoked or non-smoked form. Around 120 million Indians smoke, of these 115 million are males and 5–6 million are females. Fourty percent of rural men and 10% of rural women chew tobacco, 31% of urban men and 5.5% of urban women chew tobacco (John et al 2010). Recent trends in tobacco use are not indicated with certainty. However, the absolute number of male smokers is rising, with male smokers between the ages of 15 and 24 accounting for the largest proportion of the increased consumption (Sharma 2014).

About one million deaths are attributable to smoking-related diseases annually in India (John et al 2010) and on an average, male beedi smokers die six years earlier and female beedi smokers die eight years earlier than their non-smoking counterparts. Male cigarette smokers die an average of 10 years earlier than their non-smoking counterparts. More than half of tobacco-related smoking deaths occur in illiterate sub-populations. Roughly 80% of these deaths occur in rural areas. The risk of death due to chewing tobacco is 15% for males and 30% for females. Healthcare costs are a huge burden for a developing economy like India. Healthcare costs for tobacco-related illness, spent by public and private funds, was about 30,000 crore annually (Reddy and Gupta 2004). Households with a smoker have worse child health outcomes, including lower immunisation rates in children (Rani et al 2004).

Tobacco Control Measures
Cessation is the only practical way to substantially reduce the morbidity and mortality issues associated with tobacco consumption, in the relatively near term. This requires comprehensive tobacco control programmes—including both price and non-price interventions. Although India has ratified the WHO Framework Convention on Tobacco Control (WHO FCTC), implementation of its provisions has been suboptimal. According to the WHO, the six policy measures included in the MPOWER policy, if effectively implemented have the ability to reduce tobacco use, however, tobacco taxes are by far the most effective method of decreasing tobacco consumption especially among the young and lower income sections in emerging economies (WHO 2008, 2014a).

Taxation: Taxation plays a critical role in tobacco control. Tobacco taxation and consumption are inversely related (WHO and IARC 2011); higher taxes are particularly effective with poorer or less educated groups (WHO 2010). Most high-income countries have reduced their overall tobacco consumption, over the years, through increased taxation. France reduced its tobacco consumption by 50%, in a span of just 15 years, from 1990 to 2005 mostly due to a sharp rise in tobacco excise taxation (Hill and Laplanche 2003). Even among several low and middle-income countries of South-East Asia—Bangladesh, Sri Lanka and Thailand—taxes have exceeded 70% on top of the retail price (WHO 2014b).

Unfortunately, India has the lowest taxation rates on tobacco in the Asia–Pacific region—well below the recommendations of the World Bank and the WHO. This creates significant challenges for implementing cessation programmes. Tobacco taxation in India is the most complex tax policies in the world and there is no uniformity. Taxes are based on the type of product, length and quantity of tobacco. Low levels of taxation, with an inefficient tax structure contribute to increased tobacco consumption.

Taxation on cigarettes: A tax of 38% on top of the retail price, is far below the World Bank recommended rate of 65% to 80%, and also it varies with length from less than 65 mm to more than 85 mm. Longer cigarettes are taxed at higher rates, so companies manufacture varying lengths to retain their customer base and consumers shift to the cheaper options.

Taxation on beedi: Handmade beedis are taxed at 12 per 1,000 sticks, machine made beedis are taxed at 30 per 1,000 sticks and an average rate of 9% is applied to the retail price. As a result, nearly 98% of beedis are handmade (Sunley 2008) though mechanisation is available. Also, small-scale beedi manufacturing has been reduced to only 50% of the market with a concomitant increase in household beedi rolling, given that no tax is levied if production is less than two million beedis annually.

Taxation on oral tobacco: There is no set tax on chewing tobacco—this is subject to ad valorem taxes that are based on the value of tobacco products. The literature indicates that reducing oral tobacco consumption through taxes, is not as feasible as reducing smoked tobacco consumption, due to the large and informal market of sub-suppliers, in the case of oral tobacco (Jha et al 2011). This leads to its greater use, and is of particular concern in India due to the disproportionate usage by women and youth and the fact that oral tobacco is a major cause of oral cancer, of which India has become an epicentre. It is of paediatric concern also, because children on the street begin consuming tobacco through chewable forms that are available in sachets (Priya and Lando 2014).

Literature on Tobacco Taxation
Higher taxation of tobacco products is the single most effective intervention to reduce consumption (Jha et al 2008). The following are the consequences of an increased taxation on beedi and cigarette manufacturing, with respect to revenue raise and premature mortality. Raising taxes on beedis to 98 per 1,000 sticks would raise tax revenue of over 36.9 billion and would also prevent 15.5 million deaths in terms of current and future beedi smokers (John et al 2010). Raising cigarette taxes to 3,691 per 1,000 sticks would raise tax revenue of over 146 billion and also prevent 3.4 million deaths in current and future cigarette smokers (John et al 2010). Uniformity in taxation also is indicated. The increased tax revenue could support comprehensive tobacco control programmes, including cessation, and other social and public health programmes such as those in Australia (VicHealth) and Thailand (ThaiHealth) (John et al 2010; WHO 2012).

Economic growth: Taxation policy should be in accordance to income growth, with annual systematic inflation-adjusted increases built into the policy; otherwise increased affordability will lead to an increased consumption. In India, beedis were nearly three times more affordable in 2011 than in 1990, while cigarettes were two times more affordable (Blecher and Van Walbeek 2009). Manufactured cigarettes are also displacing beedis (Jha et al 2011) as a measure of affordability.

In the Indian scenario, high consumption of tobacco is due to easy availability, accessibility and affordability, exacerbated by a lack of health education and awareness as well as, poverty. Tobacco control requires strong political will—to control tobacco production, to enforce strict regulations as stated in the Cigarettes and Other Tobacco Products Act 2003, to be compliant with FCTC regulations and guidelines and to include increased and uniform taxation on smoking tobacco, with an equal consideration on taxing smokeless tobacco.

Commentary by Priya Mohan; Harry A Lando and Panneer Sigamani in the Economic and Political Weekly

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