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Tobacco products set to get costlier
March, 15th 2012

Price of tobacco products could see an increase soon. The Union health ministry has written to all states asking them to either levy or increase VAT on all tobacco products - cigarettes, beedis, smokeless tobacco (gutka and pan masala), snuff and beedi leaves.

Tobacco is a prominent risk factor for six of the eight leading causes of death, and almost 40% of non-communicable diseases like cancer, cardiovascular diseases and lung disorders.

Studies have shown that a 10% rise on beedi prices would result in a 9.2% reduction in beedi consumption, while a 10% spurt in cigarette prices would reduce cigarette consumption by 3.4%.

In India, 10 lakh deaths are attributed annually to tobacco alone. It is estimated that by 2020, tobacco use will account for 13% of all deaths in India every year. Almost 35% adults (15 years and above) consume tobacco in India (47% men and 21% women).

Some states have started levying high rates of VAT on tobacco products - Rajasthan (40% VAT on all forms of tobacco), Gujarat (25% VAT), Odisha (25% VAT) and Jammu and Kashmir (30% VAT on all tobacco products).

Additional secretary in the ministry Keshav Desiraju in his letter said, "Tobacco use leads to a huge burden of disease, disability and death thus imposes high healthcare and productivity costs. As per health cost study conducted by the Indian Council of Medical Research, the cost of treatment of just three diseases caused by tobacco - cancer, lung disease and chronic obstructive pulmonary disease accounted for roughly 25% of all public spending on health."

He added, "One of the effective ways to reduce tobacco consumption is by making the per unit price higher so as to make them unaffordable or the susceptible population such as the poor or children or youth. We are sure that levy of or increase in VAT on all tobacco products/inputs will support to prevent new initiation into tobacco use and encourage tobacco users to quit."

Bhavna Mukhopadhyay, executive director of Voluntary Health Association of India, said in the upcoming Union budget all tobacco containing products should be subjected to high rate of excise and VAT "to keep the next generation healthy. If tax on tobacco products is raised, government Income will increase while expenditure on health will go down. Today, tobacco products are affordable and easily accessible to minors."

Experts say taxes on tobacco products in India fall well below the rate recommended by the World Bank - from 65% to 80% of retail price. Taxes on beedis are very low, averaging only 9% of retail price, while cigarette taxes account for about 38% of the retail price. About 5,500 people take to tobacco consumption daily. It is estimated that raising the tax as a percentage of retail price from 7% to 33% for beedis and from 43% to 58% for cigarettes would conservatively lead to about 14 million smokers quitting and 27 million children never starting. This will save 69 million years of healthy life over the next 40 years.

The increase would also generate about Rs 73 billion, or an additional 1.2% of government revenue. A study, undertaken by the National Institute of Public Finance and Policy in 2010, had demonstrated that the health impact of a 52.8% increase in beedi price would be 4.6 million averted premature deaths among current smokers and generate Rs 36.9 billion for the government. An increase of cigarette prices by 158% would avert an additional 1.8 million premature deaths among current smokers and generate Rs 146.3 billion.

Over 120 million Indians smoke, and 10% of the world's tobacco smokers live in India.

Almost a third of Indians - 57% of all men and 11% of all women - consume some form of tobacco, and many use more than one type of tobacco product. Beedis are the most popular tobacco product used in India. Beedis account for nearly 85% of total smoked tobacco in India. In terms of volume; cigarettes comprise less than 15% of all smoked tobacco, but contribute nearly 85% of tobacco taxes.

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