Health ministry for imposition of tobacco tax

New Delhi: In a move that could have significant impact in discouraging people from smoking, the Union health ministry has recommended the ministry of finance to tax all tobacco products including bidis at 28 per cent plus higher cess under the new GST regime. 

Suggesting that the cess levied under the GST should be high enough to make tobacco products unaffordable, the health ministry in its recent letter to the finance ministry has recommended doing away with the tiered tax structure for cigarettes. 

While it is proposed under GST that business having an annual turnover below Rs 20 lakh will be exempted from this tax, the health ministry has also suggested not giving such exemptions to those producing demerit goods like tobacco, aerated drinks and pan masala.

“It may be worthwhile to note that such an exemption was earlier given to the bidi industry wherein units producing less than 20 lakh bidis were exempted from paying Central Excise Tax. Taking advantage of this exemption, bidi manufacturers closed bigger units and started producing on small scale under different names in a clandestine manner, resulting in huge tax evasions,” the letter further said.

The health ministry has therefore recommended doing away of tax exemption of all bidi manufacturing units and they be licensed to ensure enforcement of both tax and labour welfare laws.

Suggesting that all tobacco products should be subjected to high levels of cess in addition to the GST rate in order to be revenue neutral, it cited that any distortion will promote the use of toxic products like bidis which could be devastating to the health and well-being of millions of Indians. 

“Categorising bidis in the 28 per cent plus cess demerit goods category and imposing a high enough cess on all tobacco products to keep it at current levels of taxation may be one of the most critical public health and revenue decisions that the central and state governments can take which will impact the health and well-being of Indians,” it said.

Each year, about 10 lakh Indians die from tobacco-related diseases. The total direct and indirect cost of diseases attributable to tobacco use was a staggering Rs 1.04 lakh crore in 2011 or 1.16 per cent of the GDP. 

Factoring in the new excise taxes announced in the union budget 2017-18, the total tax burden on bidis is nearly 19.1%, cigarettes is 51.7% and that on smokeless is 57.4%.  “It is clear that unless a sizeable cess is imposed on top of a 28% GST, tobacco products will have a reduced tax burden post GST,” added the letter.