Tobacco tax hike can fetch more revenue, save more lives

By Sanjay Kumar With the Covid-19 pandemic hitting the countrys economy hard, preparation of the Union budget for the next fiscal is a big challenge for the government this time.
To set a course for economic recovery, the government needs funds to invest in the infrastructure and social sectors. Due to a slow-down in the economy, the government is compelled to inject stimulus packages. However, the government’s revenue collection has taken a considerable dip too. The treasury is thus facing an uphill task.
Experts in the Finance Ministry have been looking at various suggestions to prepare a budget that can set the pace for recovery of the economy with various policy interventions. Raising taxes on all tobacco products is one of the options available to them. It will help generate additional revenue at this time of crisis. It will also prove to be an effective policy intervention to reduce tobacco use in India and save millions of lives.
The annual economic costs from all diseases and deaths attributable to tobacco use in India for the year 2017-18 amounts to Rs. 177,341 crore which is 1 per cent of India’s GDP. If we take this estimate into consideration, the economic cost from all tobacco products may come around Rs 1.80 lakh crore today.
Raising the tax on tobacco products can fetch annual revenue of nearly Rs 49,000 crore and significantly reduce their consumption as well. The government can utilise the additional revenue in strengthening health promotion and prevention programs amid the pandemic.
At present, the average price of cigarettes is Rs 127 per pack of 10 cigarette sticks. The government can levy an excise tax of Rs 4,170 per 1000 sticks of cigarettes and generate additional tax revenue of Rs 27,423 crore. Cigarette consumption will go down by 22 per cent, as prices will increase, experts say.