Expensive cigarettes equals more revenue and less health risks

Announcing an increase of excise duty on cigarettes, Finance Minister
Shri P Chidambaram during his Budget speech on Thursday said, “What does a Finance Minister turn to when he requires resources? The answer is cigarettes.”

The FM could well have rephrased his comment to what should government do to force people to quit smoking? The answer is, impose higher tax on cigarettes.

Rajasthan has shown the way. Consumption of cigarettes, bidis and zarda (chewing tobacco) has declined drastically in the state since the last three years after the state government increased tax rate on tobacco products from 20 per cent to 50 per cent.

While in terms of value, cigarette sale was Rs 413.55 crore in 2010-11, it came down to Rs 349.67 crore in the following year while in the first six months of current financial year the total sale of cigarettes was just Rs 160.28 crore.

Similarly, bidi industry registered a decline in sale by more than 50% in last two years from Rs 73.45 crore to Rs 25.10 crore and chewing tobacco sale dropped from Rs 31.54 crore to Rs 14.56 crore.

Buoyed by this trend the state government is contemplating a 50 per cent hike in the tax rate on tobacco products in the upcoming Budget. The state government while presenting a paper on strategy to reduce tobacco consumption in the National Consultation on Economics of Tobacco in December last year proposed to increase tax rate on tobacco products from existing 50 per cent to 75 per cent in line with WHO norms.

Experts say that raising taxes on cigarettes and bidis would have twin impact on health and revenue. Dr Virender Singh, Medical Superintendent of SMS Hospital said, “Cost escalation in tobacco products would not only reduce their consumption but also increase revenue for the government.” If the trend continues actual health benefits would be witnessed in a decade, he added.

As per WHO, in developing countries every 10% increase in price of tobacco will result in 8% reduction in tobacco use or consumption.

A recent study titled ‘Economics of Tobacco and Tobacco Taxation in India’ also highlights the crucial role that the government can play in reducing tobacco-related deaths by raising taxes on tobacco products.

Quoting a study by John’s Hopkins University (USA), Dharamveer Katawa, secretary Indian Asthma Care Society said, “The state government saved four lakh young lives when it raised tax rate on tobacco products from 20 per cent to 40 per cent.” At the same time, the state government’s earnings from tax on tobacco products have increased almost three folds. From Rs 288.16 crore in 2009-10, it went up to Rs 627.82 crore in the last financial year.

Courtesy: Daily Bhaskar