- In India, which is the 2nd highest consumer of tobacco, despite indications of increased taxes on tobacco products, the complex taxing structure for tobacco products will ensure that it has no visible effects on the consumption rate. Reasons:
- Beedis:
- Handmade beedis taxed at just Rs.12 per 1,000 sticks, and machine-at Rs.30 per 1,000 beedis. 98% of beedis sold in India are handmade.
- Beedi manufacturers producing less than 2 million beedis per year are exempted from paying tax.
- Low taxation and possible evasive methods will ensure that there is no reduction in tobacco, more so because beedi constitutes for about 35-40% of the total tobacco consumption in India.
- Cigarettes:
- Taxation is based upon the length of the cigarettes. Longer ones attract more tax. This encourages companies to manufacture cigarettes of varying lengths.
- Increase in tax will prompt people to move from longer length to shorter length cigarettes.
- Tax on cigarettes is a mere 43% of the retail price, as opposed to the recommended 70%.
- Chewing tobacco products are taxed ad valorem (at a percentage rate based on retail price) as a result of which the tax can be reduced by making the product cheaper.
- Taxation structure is not linked to inflation making any increase in tax irrelevant. Tobacco becomes cheaper relative to income affordability.
- To reduce consumption by increasing taxation:
- Number of tiers based upon cigarette length must be removed.
- Consistent excise duty across all tobacco products must be introduced.
- Taxation should be inflation-adjusted and reviewed annually.
- Tobacco products must be taxed at a higher rate compared to other products.
- Introduce simple and enforceable system to tax and prevent leakage.
- Remove differential tax system between handmade and machine made beedis.
- Introduce a long-term plan to remove tax exemption for those who produce less than 2 million beedis per year.
- Read at: http://www.thehindu.com/todays-paper/tp-features/tp-sci-tech-and-agri/will-tax-hike-reduce-tobacco-consumption-in-india/article6083862.ece