Hike tax on tobacco, reduce affordability & increase revenue: Civil society organizations to GST council

GUWAHATI: Civil society organizations, along with doctors, have urged the GST Council to increase compensation cess on all tobacco products to generate additional revenue for the government. In their appeals to the GST Council before its meeting on September 17, they are urging it to consider an extraordinary measure of levying compensation cess on all tobacco products to get additional revenues. This tax revenue from tobacco could significantly contribute to the increased need for resources during the pandemic, including vaccinations and augmenting the health infrastructure to prepare for a possible third wave. According to the group, increasing tobacco taxes in these challenging times, will be a win-win policy as it can address the economic shock from COVID-19 pandemic and directly reduce COVID-19 related co-morbidities.

The second wave of COVID-19 has been major shock to the country, and it far surpassed the first wave. The Government of India had already announced various fiscal and economic stimulus measures to boost the economy and compensate people affected from the negative economic shock from the pandemic when the first wave hit India. The financial needs for the exchequer continue to grow in the face of the vast resources needed for the vaccination drive and for the preparation for a possible third wave of the pandemic. The GST revenue receipts of both Central and State governments have been severely affected due to the COVID-19 pandemic and, as a result, the Central Government has not been able to distribute the compensation cess dues to different State governments as guaranteed under the GST.

Increasing the existing compensation cess on cigarettes and smokeless tobacco products and levying compensation cess on bidis can be a very effective policy measure to address the immediate need to raise revenue by the Central Government to compensate State governments for their respective GST revenue shortfalls during the pandemic time. It will be a winning proposition for generating revenue and reducing tobacco use and related diseases as well as COVID related co-morbidities.

There has not been any major increase in tobacco taxes since the introduction of GST in July 2017 and all tobacco products have become more affordable over the past three years. The total tax burden (taxes as a percentage of final tax inclusive retail price) is only about 52.7 per cent for cigarettes, 22 per cent for bidis and 63.8 per cent for smokeless tobacco.

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