Fiscal Regulation and Tobacco Consumption in India

Fiscal Regulation and Tobacco Consumption

Abstract

Background: India is a land of diversity and tobacco consumption in India reflects this diversity with widespread availability of cheap indigenous tobacco preparations like bidis, betel, mishri, khaini, gutka, snuff, etc. India is the second largest consumer of tobacco worldwide, and tobacco is the single largest risk factor for Non-Communicable Diseases (NCDs) in the country, with attributable economic costs amounting to USD 22.4 billion for adults aged 35-69 years. To tackle this growing burden, the Indian government has implemented the tobacco taxation and regulation policy.

Objectives: This study aimed to understand the effect of cigarette taxation policies on smoked tobacco consumption in India.

Methodology: Secondary literature on fiscal policies on smoked tobacco, economic and epidemiological data and smoked tobacco consumption over the last two decades were analyzed.

Findings: There is a skewed tax base for tobacco consumption, with the taxation focusing on 14% of cigarette smokers while leaving 85% of bidi smokers outside the tax net since the bidi industry is a large unorganized sector that pays little or no tax due to exemptions or evasions. Bidi smoking causes greater health damage than cigarettes and hence, not only the revenue collections from tobacco taxation are sub-optimized but also the adverse impact on health is greater. In addition, political gains are prioritized since most of these bidi manufacturing industries are owned by politicians or their relatives, which serve as vote banks.

Conclusions: Analysis of tobacco fiscal regulatory policy implementation over the past two decades reveals a complex picture. Political, social, behavioral factors along with economic and epidemiological evidence suggests that India’s tobacco taxation policies are sub-optimal.

Recommendations: In order to make any meaningful impact to reduce smoked tobacco consumption in India, the fiscal policy regulation needs to target bidis. An increase in tax on bidis or a bidi ban would be more effective. While e-cigarettes have been recently banned in India, a ban on bidis is more difficult to achieve considering the complex socio-political and ethical implications. The ethical implications of increasing bidi taxation involve potential loss of livelihood of workers engaged in bidi manufacturing, which can be addressed by implementing alternative livelihood policies.