GST reform and unfinished business in tobacco control, Pg8

Context:

• Eight years since the implementation of GST, structural shortcomings in tobacco taxation remain a public health concern, calling for urgent fiscal and policy reforms.

Key Highlights:

• GST has simplified indirect taxation, and boosted compliance and revenue.
• Tobacco-related deaths exceed 3,500 per day, imposing a ₹2,340 billion annual economic burden.
• No major tax hikes on tobacco products since GST introduction, weakening price deterrence.
• Tobacco tax burden falls below WHO benchmarks: 22% (bidis), 54% (cigarettes), 65% (smokeless tobacco).
• Specific excise taxes declined post-GST: from 54% to 8% (cigarettes), 17% to 1% (bidis).
• Bidis, despite being most consumed, are exempt from GST compensation cess.
• Illicit trade claims are exaggerated; actual share is only 2.7%–6.6% according to independent studies.

Detailed Insights:

• While GST reforms improved tax efficiency and logistics, they neglected public health priorities, particularly tobacco control.
• Between 2009–17, regular excise and VAT increases led to a 17% fall in tobacco use; this momentum has stalled post-GST.
• The current framework’s reliance on ad valorem taxation allows price manipulation by the tobacco industry.
• Countries with dual tax structures (ad valorem + specific) are more successful in reducing tobacco consumption and raising revenue.
• The exemption of bidis from compensation cess lacks scientific or public health justification.
• The potential end of the GST compensation cess in March 2026 could lower overall tax on tobacco, increasing affordability.
• Industry concerns about illicit trade are largely unsubstantiated; the real issue is weak regulatory enforcement.
• The ongoing rate rationalisation is a timely chance to recalibrate GST policy to meet health and fiscal objectives.

Key Concepts Involved:

• Ad Valorem Tax: A percentage-based tax on the product’s value, sensitive to price changes.
• Specific Excise Tax: A fixed amount of tax per unit of product, immune to price variation.
• GST Compensation Cess: An additional levy to compensate States for GST-related revenue loss.
• Illicit Tobacco Trade: Unregulated, untaxed production or movement of tobacco products.