Ahead of Budget 2023-24, economists have called for a substantial hike in tax on all tobacco items and stronger laws as it will not only bring the best out of the human capital by ensuring better health of the citizens but also help achieve Prime Minister Narendra Modi’s vision of a five trillion dollar economy by 2025.
Noting that healthcare burden due to tobacco in India is around 1.04% of the GDP, pushing many into poverty, Prof Arvind Mohan, Professor and Head, Department of Economics, University of Lucknow said that increasing tax on these lethal items would close the gap. Prof Mohan explained, “presently, health is a big challenge for human development as at least 70 per cent of the health expenditure is being met by the public themselves while just 25-30% by the Government and global institutions.
“But if we manage to cut down this expenditure by imposing tax on tobacco products, we will be not only able to capitalize our human resources but GDP as well which will boost in multiple percentages. This will help achieve our dream of a USD 5 trillion economy too,” he said.
Prof Mohan said, “In nearly most of the diseases, tobacco compromises the health system significantly and some of the studies also suggest that if tobacco could be banned in India then this will contribute over 1 per cent annually to the GDP.”
At a webinar organized by Tobacco Free India, a citizens group, Dr Pritam Datta, a fellow at National Institute of Public Finance and Policy (NIPFP), Delhi and Rijo M John Economist and public health policy analyst underlined that while major argument for introducing GST in 2017 was that it would contribute 2% cent of the GDP growth but, in actual this has not happened. Almost nil tax increase on the sin products like tobacco is one of the major reasons, they opined.
The economists strongly suggested that increasing inflation, which has put the country's budget under pressure and urgent need of fresh cash can be met by levying taxes on demerit products like tobacco.
From a health point of view, their push for increased tobacco taxation was based on the fact that it will bring down health expenditure across the country, said Dr Datta while John too opined that taxation on tobacco can be a very effective tool to generate revenue.
John said that India is among 182 countries which signed the WHO framework convention on tobacco control which recommends at least 75% tax on retail price of all tobacco products.
However, in India, tax on cigarettes is 52.7%, bidis 22% and chewing tobacco 63.8%, he added. According to a World Bank report, increasing excise tax rates on tobacco will reduce its affordability and “as evidence shows, lower its consumption”.