Tax burden on cigarettes in India far below international standards: Study

The current tax burden on cigarettes in India is far below the standard of international best practice, a new study showed on Wednesday that named Australia and New Zealand as top-performing countries for significantly reducing the affordability of cigarettes.

In the first edition of the International Cigarette Tax Scorecard, compiled by Tobacconomics, India got an overall score of 1.88 out of 5 possible points, which is slightly better than the South-East Asia average (1.82), but lower than the global average (2.07) and scores of top-performing countries (4.63).

"The top-performing countries are Australia and New Zealand, which reflects their high, uniform specific cigarette excise taxes with regular increases that have significantly reduced the affordability of cigarettes," said Tobacconomics after assessing the performance of cigarette tax policies in over 170 countries including India.

Tobacconomics is based at the University of Illinois at Chicago's Institute for Health Research and Policy, conducts economic research to inform and shape fiscal policies for health globally.

It said the scorecard assessed countries' cigarette tax policies based on international best practices using data from the World Health Organization from 2014-2018.

Nearly half the countries scored less than two out of the five-point maximum.

There has been little improvement from 2014-2018 -- the global average score rose only slightly from 1.85 in 2014 to 2.07 in 2018.

Regarding India, it said the country had significantly improved its score on cigarette taxation policy from 1.38 in 2014 to 2.38 in 2016 after which it declined to 1.88 in 2018 due to the lack of tax increases on tobacco and increasing affordability of cigarettes.

Overall scores, however, improved in 89 countries. Introduction of significant cigarette excise taxes, simplification of previously complicated tiered cigarette excise tax structure and large tax increases are the reasons why some countries improved their scores, and they are already reaping the rewards of higher revenues and lives saved.

"The scorecard shows considerable untapped potential for cigarette tax increases to raise revenue for a Covid-19 recovery and importantly, prevent premature deaths and promote a healthy and productive workforce," said Tobacconomics director and lead author of the scorecard, Frank J Chaloupka.

"The current tax burden on cigarettes in India is 52 per cent and is far below the standard of international best practice. The lack of increase in taxes on tobacco products after the introduction of the GST in the year 2017 has increased the affordability of cigarettes in India," said Dr Rijo John, a health economist and adjunct professor at the Rajagiri College of Social Sciences, Kochi.

Dr John suggested that India must reduce the number of tiers for the purpose of cigarette taxation and significantly increase its existing excise taxes on tobacco products to save lives and raise much-needed revenue.

"Indian and global studies are providing clear evidence of how tobacco use in all forms, whether smoking or chewing, is leading to severe Covid-19 manifestations and adverse outcomes," said Dr Harit Chaturvedi, Chairman of Max Institute of Cancer Care.

Regular tax increases on tobacco products will reduce their consumption and generate much-needed revenue to strengthen health promotion and prevention programs, while it will also help address comorbidities of tobacco use and Covid-19 pandemic in India, Dr Chaturvedi said.

According to some estimates, about 3,500 people die every day in India from tobacco use and the economic burden from tobacco use amounted to Rs 1,77,341 crore in 2017-18 which is 1 per cent of the country's GDP.

As the Covid-19 pandemic has created a major dent in India's GDP growth, reforming tobacco taxes provides a quick and easy way for India to raise much-needed revenue for economic recovery, experts said.

"Tobacco taxes are the single most effective way to minimize the negative health and economic impacts of tobacco consumption. The best way to do this is through a uniform specific excise tax that comprises at least 75 per cent of the retail price and is automatically updated to stay ahead of inflation and income growth," Tobacconomics said.