The nine-member committee set up in October 2021 to suggest an increase in tobacco taxation in the country has been lying dormant and is unlikely to submit a report anytime soon, sources said.
The mandate of the committee, which is headed by the health ministry's additional secretary, is to analyse current taxes on tobacco and give a roadmap to increase them in order to reduce demand, in accordance with World Health Organization (WHO) recommendations.
The committee includes members from Goods and Services Tax (GST) Council, NITI Aayog, Central Board of Indirect Taxes and Customs (CBIC), revenue department’s Tax Research Unit, WHO country office for India and National Institute of Public Finance and Policy (NIPFP).
“The committee is dormant. Chairman has not convened any meeting for a very long time now, about a year. Without a meeting, you cannot expect any report to be submitted. The intent was shown in forming the committee, but after that no progress,” the sources told Moneycontrol.
The government needs to increase NCCD, GST cess and ad valorem each by 10 percent so that the overall tax on tobacco can be higher than the per capita income and inflation growth.
“If there is 5 percent per capita growth and 5 percent inflation, then the total tax increase should be more than 10 percent at least. Overall tobacco tax increase by 10 percent, each of the different tax components – NCCD, cess and ad valorem, has to be increased by 10 percent, then it will be impactful. The effective tax burden is calculated as tax share on retail price. The effective burden on buyers will depend on the tax increase and increase in retail price by companies,” the person said.
While the WHO recommends at least 75 percent tax on tobacco products, in India currently the effective rate on cigarettes is 52.7 percent and on beedi is 22 percent. There has been almost no tax increase on tobacco over the last five years.
“Tax burden on tobacco is much below the 75 percent recommended by the WHO. As far as tobacco taxation is concerned, India is taking a backseat since the GST has come into place. Since there is no revision in tobacco tax, it is becoming more affordable in India,” he said.
In this year’s budget, there has been a minor revision in National Calamity Contingent Duty (NCCD), but it was quite insignificant. The increase in NCCD was 16 percent for cigarettes. The NCCD itself constitutes only 10 percent of the overall tax on cigarettes, so the effective overall tax increase was only 1.5 percent.
In the pre-GST regime, regular excise duty hikes used to happen on tobacco in Union budgets. But that has not been the case with GST.
“The cess can be easily increased under GST. The GST rate on tobacco is 28 percent. Cess can be revised upwards. In NCCD too, we have room to increase it. Significant increase in cess on cigarettes needed,” he said.
Currently, the cess is depending on the length of the cigarette ranging from the highest Rs 4,170 per 1,000 cigarettes plus 36 percent ad valorem to Rs 2,076 per 1,000 sticks plus 5 percent ad valorem.
Meanwhile, the government and PSUs' stake in tobacco companies like ITC continues to remain high. The government holds 974.5 million shares, or a 7.86 percent stake, in ITC via the Specified Undertaking of the Unit Trust of India (SUUTI). LIC has a 15.27 percent stake in ITC as on December 2022. Other insurance companies also hold a stake in ITC, including 2.07 percent stake by New India Assurance Company, 1.84 percent by General Insurance Corporation of India, 1.64 percent by Oriental Insurance Company and 1.57 percent by National Insurance Company among others.
Also, there is no cess on beedi currently. Tax on beedi has not been touched despite it being most commonly used in India.
“There is no public health rationale that beedi should be left out of cess. So concerns remain. The government is not doing much about it,” he said.
The parliamentary standing committee on health in a report tabled in Parliament in December 2022 said, “India has one of the lowest prices for tobacco products and there is a need to increase taxes on tobacco products. The Committee accordingly recommends the Government to raise taxes on tobacco and utilize the additional revenue gained for cancer prevention and awareness.”
In 2018, as many as 38 countries, covering 14 percent of the global population, had sufficiently high tobacco taxes - which means taxing at least 75 percent of the cost, according to a WHO report.
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