Indian tobacco policy in knots!

India's tobacco tax policy is tied up in knots. It does not tax tobacco adequately because of its many political compulsions, as a result of which more poor people will continue using it.

Cigarettes are taxed at 35-50% of their retail price, bidis next to negligible, and packaged chewing forms (very few companies are registered though thousands of brands exist) that started getting taxed only from 2008 are taxed around 15% of their retail price.

More than one million Indians are estimated to die annually simply from smoking tobacco. An unaccounted number of poor die from chewing tobacco as gutka, khaini and other nefarious blends that are unregulated for their content. No department within the government has a clue on the number or types of products, their brands, factories and the number of workers employed with them.

There is no mention of bidis that are consumed more than cigarettes or of chewed tobacco that is the most consumed of all tobacco in the country. Taxes on cigarettes are already low and that on bidis is close to zero. A study coordinated by the National Institute of Public Finance and Policy in 2010 demonstrated that the health impact of a 52.8% increase in bidi price would be 4.6 million averted premature deaths in current smokers and generate Rs 36.9 billion (or $0.8 billion) for the government.

An increase of cigarette prices by 158% would avert an additional 1.8 million premature deaths in current smokers and generate Rs 146.3 billion (or $3.1 billion). Another 2011 paper estimated that nearly 15 million people are pushed into poverty every year in India due to tobacco use and stated that controlling tobacco use would not only improve public health but also reduce poverty in India! Economic costs of tobacco use amounted to $1.7 billion annually. 

The World Bank recommends 70-80% of the retail price as tobacco tax.
Budget 2012 provides a unique opportunity to revise the tax policy on tobacco, increase government revenues and demonstrate government's efforts to protect citizens' health.
 
Excerpted from the Economic Times story, Budget 2012: Government should tax all forms of tobacco