Ministry wants 70 pc of price as taxes for tobacco products

The Health Ministry is all set to introduce a steep hike in taxes on tobacco products in its budget proposal so much so that it wants the tax component to be 70 per cent of the retail price of the product.

This is a dramatic shift to the existing taxation principle under which the country's tobacco taxes are among the lowest. Less than 10 per cent of the retail price of beedis is state taxes and 38 per cent of cigarette prices account for VAT.

The move is likely to supplement the efforts of the ministry, which has been trying to extend the gutkha ban to pan masala and zarda. So far 14 states have banned gutkha sale.

"We have proposed that 70 per cent of the retail price of tobacco products should be taxes including VAT, excise, GST and whatever else is levied," said a senior official at the Tobacco Control Department of the ministry. The official attributes the move to the correlation between the a drop in demand with the increase in prices of tobacco products.

"Our move is in line with the spirit of the 12th Plan where the concept of a sin tax has been mooted to fund expenses on control of non-communicable diseases," the official said.

According to a tobacco economics report by the Bloomberg Initiative to Reduce Tobacco Use, a 10 per cent increase in prices of tobacco products is estimated to reduce bidi consumption by 9.1 per cent and cigarette by 2.6 per cent.

The report made by researchers including Dr Prabhat Jha opines that if India increases its tax rate on bidis from Rs 14 for 1,000 sticks to Rs 98 (from 9 per cent to 40 per cent of retail price) and from Rs 659 to Rs 3,691 (from 38 per cent to 78 per cent), it will save 18.9 million lives in India today.

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