Levy a higher GST rate on Tobacco, Sugared Beverages

Table of Contents

Over the past seven years since GST’s introduction, no significant increases in GST rates have been made on harmful products like tobacco and sugar-sweetened beverages.
Only two minor hikes in National Calamity Contingent Duties (NCCD) on tobacco occurred.
This lack of taxation increases has made these harmful products more affordable, undermining efforts to reduce their consumption.

Impact of Proposed GST Rate Hike

The proposed 35% GST rate hike is a positive step in revenue generation (₹43 billion annually with the proposed 35% GST rate.)
- A potential 40% GST Rate could generate an additional ₹72 billion annually.
It will also lead to reducing tobacco consumption and lower treatment costs for tobacco-related diseases.

Status of Tobacco Product Consumption in India

Second-largest consumer of tobacco globally after China.
6% of adults above 15 years and 8.5% of students aged 13-15 use tobacco.
Tobacco use has declined in all groups, except for women where use increased by 2.1% between 2015 and 2021.
India accounts for the largest (66%) of the world’s smokeless tobacco users.

Impact of Tobacco Usage

Human Health: It is a leading cause of non-communicable diseases (NCDs) such as cancer, cardiovascular diseases, and respiratory issues and over 3,500 deaths per day in India.
Economic Loss: In 2017, the annual economic burden of tobacco was ₹2,340 billion (1.4% of GDP).
Geographical Impact: It depletes soil nutrients and is a major contributor to deforestation (5.4 kg of wood is required to process 1 kg of tobacco).
Environmental Impact: The production and consumption of tobacco generates ~1.7 lakh tonnes of waste every year in India.

Steps Taken By Government

Cigarettes Act, 1975: Mandates statutory warnings such as “Cigarette Smoking is Injurious to Health” on cigarette packs and advertisements.
Cigarettes and Other Tobacco Products Act (COTPA), 2003: Regulates the production, advertisement, distribution, and consumption of tobacco through 33 sections.
WHO Framework Convention on Tobacco Control (FCTC), 2005: India is a signatory to this global treaty aimed at reducing tobacco use.
- This treaty helps countries develop strategies to reduce demand and supply of tobacco.
Food Safety and Standards Act, 2006: Prohibits the use of tobacco or nicotine as ingredients in food products.
Cable Television Networks Amendment Act, 2000: Bans advertisements promoting tobacco and liquor on television.
Prevention and Control of Pollution Act, 1981: Recognizes smoking as a source of air pollution.
Motor Vehicles Act, 1988: Prohibits smoking in public vehicles.
National Tobacco Control Programme (NTCP), 2008: Aims to reduce tobacco consumption and related deaths.
- Key activities: training, capacity building, information dissemination, surveys, surveillance, and cessation support.
Tobacco Cessation Programme: Provides support to individuals trying to quit tobacco use.
- Establishes cessation clinics across the country to aid in quitting efforts.

Hike of Taxes on Tobacco and Sugar-Sweetened Beverages (Argument and Counterpoint)

Concern	Argument	Counterpoint
Potential Increase in Illicit Trade	Higher taxes may drive consumers to purchase cheaper, unregulated products.	Evidence shows tax hikes have minimal impact on illicit trade; governance and regulation matter more.
Impact on Low-Income Consumers	Higher taxes disproportionately burden low-income groups consuming beedis/tobacco.	Reducing consumption improves long-term health and lowers medical expenses.
Industry Over-Shift of Tax Burden	Industry may pass on higher-than-required price hikes to increase profits.	Effective monitoring and regulation can prevent excess profit-making. E.g., India should consider raising excise taxes alongside the GST revision for a stronger and more comprehensive taxation framework.
Impact on Farmers and Small-Scale Producers	Tobacco farmers and beedi producers may suffer due to lower demand.	Diversification programs and alternative livelihoods can mitigate this impact.
Revenue Stability	Declining consumption may reduce overall tax revenues in the long run.	Initial revenue increases can be reinvested in health and development programs.
Economic Impact on Beverage Industry	Declining sales may affect jobs and investments in the beverage industry.	Health benefits outweigh short-term economic concerns; industry can offer healthier alternatives.
Administrative Challenges	Enforcing higher taxes may be difficult, especially in rural areas.	Strengthening enforcement and regulation can address these challenges effectively.
Consumer Resistance and Public Backlash	Consumers may resist sudden price hikes, viewing them as punitive.	Public awareness campaigns can build support by highlighting health benefits.