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The 26 per cent 'sin' tax on tobacco products proposed by Goods and Service Tax Council will "negatively" impact revenue and public health, and anything below 40 per cent will make those items more affordable to the youth and other vulnerable populations, various bodies said on Tuesday.
With India having the world's second largest number of tobacco users - 275 million or 35 per cent of all adults in the country - and of these at least 1 million dying every year from tobacco related diseases, the bodies said there is an "overarching consensus" that tobacco be taxed at the highest rate.
The bodies in a statement said tobacco be taxed at the highest rate under GST as recommended in the Chief Economic Advisor report, which seeks a 40 per cent GST sin rate on all tobacco products including cigarettes, bidis and chewing tobacco.
They said the GST council meeting that concluded on October 20 proposed a much lower 26 per cent GST sin rate which will have "significant impact on the revenue as well as the health of our nation, both of which require serious consideration".
"Compared to a GST 'Sin' rate of 40 per cent, imposing a 26 per cent 'Sin' rate will reduce total tobacco tax revenue by almost one fifth (17 per cent or roughly Rs 10,510 crores) even if the government retains the current excise on tobacco products post GST," said Rijo John, Assistant Professor, IIT Jodhpur.
"Clearly, 26 per cent 'Sin' rate will be well below what is 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," John said.
Tobacco-use imposes enormous health and economic costs on the country. The total direct and indirect cost of diseases attributable to tobacco use was a staggering Rs 1.04 lakh crore ($17 billion) in 2011 or 1.16 per cent of India's GDP.
"A much lower GST rate will make all tobacco products even more affordable to the youth and other vulnerable populations, leading to the impact of the tobacco epidemic becoming more severe driving up healthcare costs and resulting in productivity losses.
"This will certainly lead to an increased number of fatalities per year, which is not a good news for any country. I firmly believe and urge that the government should tax tobacco products at very high rate to ensure it discourages mass consumption," said Pankaj Chaturvedi, Oncologist at Tata Memorial Hospital, Mumbai.
Approximately 48 per cent men and 20 per cent women consume tobacco products (35 per cent of the adult population overall). Of these at least 10 lakh are dying each year from tobacco related diseases.
Bidis comprise 48 per cent of the tobacco market, chewing tobacco 38 per cent and cigarettes 14 per cent.
"The current tobacco tax differentiates significantly between various forms of tobacco products," said Bhavna Mukhopadhyay, CEO, Voluntary Health Association of India.
"Continuing to sell cheap, virtually tax-exempt bidis to the underprivileged, even in the new GST system, will ensure that the poor continue to be trapped in vicious cycle of poverty and ill health... Exacerbated by affordability and addiction which causes them to spend more on tobacco and less on food, healthcare and education.
"We would urge the central and state governments to tax all forms of tobacco including bidis at 40 per cent under GST regime, to insulate the population from its ill effects," Mukhopadhyay said.
According to, Ashim Sanyal, COO, Consumer Voice, with 85 per cent of smoked tobacco being consumed as bidis, a large percentage of the 10 lakh tobacco related deaths occur because of bidi use.
"Therefore, treating bidis under the highest category for sin products to attract maximum tax will not only save the lives of lakhs of poor Indians but will also help reduce the overwhelming health disparities between various strata of society," he said.
