Union Budget: Ministry for tax policy for tobacco products

With tobacco use being the common risk factor for all Non Communicable Diseases (NCDs), the Union health ministry has asked the ministry of finance to increase taxes on tobacco products in the upcoming budget 2016-2017. In a recent letter to secretary (revenue) in the ministry of finance, health secretary B.P. Sharma has asked to consider “developing a comprehensive tax policy” for tobacco products to make them less affordable by indexing tax increases on tobacco products in the Budget.

Citing that the tax policies are widely recognised as one of the most effective means of influencing the demand and consumption of tobacco products in his letter to Dr Hasmukh Adhia, Mr Sharma has said that “increases taxes with a view to increasing real, inflation-adjusted prices of tobacco products is important for protecting young people from initiating or continuing tobacco consumption,” said the letter.

The ministry, in collaboration with the WHO country office, conducted a study to evaluate the impact of tobacco taxation in India and to examine whether current tax levels are adequate to make the tobacco products less affordable over time.

The study conducted between 2006 and 2013 revealed that the current excise and VAT taxes are “not sufficient” to increase the price of tobacco products so as to make these products unaffordable.

The study therefore recommended that “the tax on all types of tobacco products should be increased substantially and also the tobacco tax regime should be broadened to include manufacturing of tobacco products by informal sector under the tax net. The tax exemptions on production of less than 2 million bidis should be done away with and tax slabs on cigarettes based on length should be gradually eliminated in a phase-wise manner,” it further said.

In view of the findings of the study, Mr Sharma has recommended developing a comprehensive tax policy. “In the light of the ongoing budgetary process, I am sure that the recommendations of this study would help the department in making a strong case foir increasing excise duty oin all tobacco products. These initiatives will go a long way in discouraging tobacco use,” he further said.

India is the second largest consumer and third largest producer of tobacco products. The estimated number of tobacco users in India stands at 27.5 crores.