Five states increase tax on tobacco in 2011

Rajasthan takes the leap by doubling tax on tobacco within a year

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Sonal Matharu | March 24, 2011



Five states in India have taken the initiative to send a strong message to the public about the harmful effects of tobacco by increasing VAT on cigarettes, bidi and gutka in this year’s budget.

In the 2011-12 state budgets, VAT on tobacco products has increased in Gujarat, Himachal Pradesh, Jammu & Kashmir, Rajasthan and Delhi.

Delhi is just two-day old in the league as the chief minister Sheila Dikshit announced in the budget speech on Tuesday that VAT on unmanufactured tobacco, bidis and tobacco used in manufacture of bidis and hooka tobacco will increase to 12.5 percent in 2011 from five percent in 2010.

“Increasing the price of tobacco products is considered one of the most effective ways to reduce tobacco consumption. The states should realise that if they increase the tax on tobacco products, they will have to spend less on the diseases caused due to tobacco consumption,” said Binoy Mathew from VHAI.

In 2010, Gujarat was imposing 20 percent tax on bidi, cigarettes and gutka. This was increased to 25 percent in 2011. Similarly, Himachal Pradesh had 13.75 percent tax on cigarettes and gutka and four percent entry tax on bidi. The state increased the tax bar to 20 percent this year. Cigarettes and gutka had 13.5 percent tax in Jammu and Kashmir which was pushed to 25 percent in 2011.

Rajasthan tops the list with the highest tax on tobacco products. The state saw a leap in tax impositions on tobacco with the tax doubling in 2011 to 40 percent from 20 percent in 2010.

“Studies have shown that imposing tax on tobacco can help reduce tobacco consumption. Imposing tax on tobacco is a win-win situation for both the government and the people,” said Upendra Bhojani, public health researcher, Institute of Public Health, Bangalore. 

An increase of 10 percent in tax makes about three percent of cigarette smokers and nine percent of bidi smokers quit smoking, says Resource Centre for Tobacco Free India, A Voluntary Health Association of India initiative. VHAI is a NGO working on public health issues.

A study by the Bloomberg Philanthropies and Bill and Melinda Gates Foundation, called ‘The economics of tobacco and tobacco taxation in India’, was conducted in 2010. It says: If 1,000 billion bidis are consumed if the tax on them is zero percent, the consumption gets halved to 504 billion bidis if the tax is increased to 620 percent. At the same time, tax revenue increases from 14 billion rupees to 50.8 billion rupees.

Similarly, in case of cigarettes, if tax is raised from zero percent to 470 percent, the consumption of cigarettes reduces to 58 billion sticks from 108 billion sticks. The revenue raises from 70.9 billion rupees to 217 billion rupees.

“The government is needed to raise taxes on more traditional tobacco products like bidis and gutkas where taxes are very less. Also more importantly now that when state governments have started raising taxes, its vital that this money raised be earmarked for tobacco control activities. It is equally important to work on improving provision and access to de-addiction and cessation facilities in health services,” added Bhojani.
 

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