Written By: Nirmalya Dutta | Updated : July 10, 2014 3:06 PM IST
Budget 2014 Update: Jaitley proposed to increase the specific excise duty on cigarettes in the range of 11 to 72 percent. Similar increases are proposed on cigars, cheroots and cigarillos. "Likewise, the excise duty is being increased from 12 percent to 16 percent on pan masala, from 50 percent to 55 percent on unmanufactured tobacco and from 60 percent to 70 percent on gutka and chewing tobacco," he said.
India remains one of the cheapest places to buy cigarettes in the world. A packet of medium-sized cigarettes here cost around $3 while the same packet costs around $5 in the US, $13 in the UK, $9.5 in France and is just as high in most developed countries that have cracked down on smoking. Sadly, in India the rates are comparable to other developing countries and thus are very affordable for most people.
Also, most people don't smoke cigarettes at all and cigarette smokers only constitute 3% of total smokers. Most people either smoke beedis or use smokeless tobacco which is far cheaper. The practice of buying single cigarettes is also unique to Indians which often hooks young children who'd never be able to afford the entire pack.
All of this results in 1 million deaths every year, 20% of the total deaths in the country. This makes tobacco the leading cause of preventable deaths amongst the youth and can still be easily purchased anywhere. Anti-tobacco campaigner and cancer surgeon Dr Pankaj Chaturvedi points out that anyone can buy a sachet of tobacco or a beedi for as low as Rs 2 at every nook and corner. Dr Chaturvedi points out: 'It not only harms the users but also the generation that is yet to be born. It is most important cause of still birth, intra uterine grow retardation, birth anomalies when foetus is exposed to smoke. Tobacco is known to cause mutations in sperms that can be transmitted to the offspring rendering future generation vulnerable to several diseases.'
He adds: 'Tobacco kills every third tobacco user prematurely through cancer, heart disease, lung diseases, etc causing huge burden on our already resource crunched health care system. Tobacco addiction has been identified as a disease that affects every third Indian adult and nearly every fifth Indian kid. Current low tax levels serve as an incentive for tobacco user rather than deterrent.' He went on: 'I see no logic in giving tax subsidy to a product that carries a product warning that it 'kills'. In fact, it is the cheapest 'poison' currently available in the market.'
Is taxing tobacco the answer?
That the new Health Minister has attacked tobacco user with zeal is undeniable. He has already asked Defence Minister to ban cigarettes from army canteens and has also asked the Finance Minister (Mr Jaitley again) to hike prices of tobacco products in this year's budget. He cited a report stating that tobacco consumption costs actually result in a loss of Rs 1.04 lakh crore a year due to increased healthcare costs and higher taxes wouldn't just be healthy but also lead to less public expenditure. The Health Minister also pointed out that number of male smokers have increased in the past decade and asked for 'a large but feasible tax hike in the 2014 Budget on cigarettes of Rs. 3.5 per stick. The tax would be applied to all lengths to prevent the industry (tobacco) from shifting production and marketing to lower length cigarettes, as has been the past practice.' This is to avoid people switching to smaller cigarettes when they find their regular bans to be too expensive.
He also urged UTs and states to impose a VAT of at least on 50% on all tobacco products to make them less affordable. In his letter to Chief Ministers, the Health Minister has used the example of Rajasthan where VAT on tobacco products stands at 60 per cent. Quoting a report, Mr Vardhan said 80 per cent of deaths caused by non-communicable diseases are due to cardio-vascular diseases, cancer, chronic respiratory problems and diabetes, for which tobacco consumption is a major reason. (Read: Can higher tobacco taxes curb consumption?)
Will higher taxes work?
WHO seems to think it will. In an earlier release, the WHO asked governments to raise taxes on tobacco to curb their consumption. 'Research shows that higher taxes are especially effective in reducing tobacco use among lower-income groups and in preventing young people from starting to smoke. A tax increase that increases tobacco prices by 10 percent decreases tobacco consumption by about four percent in high-income countries and by up to eight percent in most low and middle-income countries,' the WHO said in a release. The World Health Report 2010 indicated that a 50-percent increase in tobacco excise tax would generate a little more than $1.4 billion in additional funds in 22 low-income countries.
The government will also look to tax heavily smokeless products and bidis which often escape the heavy taxes inflicted on cigarettes. From now on, makers of pan masala and gutka will feel the heat as taxes are to be linked to the capacity of a gutka factory and not to the size of the packet of tobacco. It's believed that this will earn the government Rs 4000-5000 crore while saving millions of lives.
An earlier study has shown that an increase in tobacco price by 50% would help to avoid 4 million deaths and get 3 million to quit smoking while 3 million other potential smokers (children) would also be dissuaded. So more money for the exchequer and less deaths, making tobacco more expensive seems like a win-win situation.
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