Tobacco Taxes

Tobacco use kills more than 8 million people a year worldwide, according to the World Health Organization. Economists and health experts agree that raising tobacco taxes is among the most effective ways to reduce it.

How smokers respond to prices

Although tobacco is addictive, smokers do respond to price. Research summarised by the WHO and the World Bank suggests that in high-income countries, a 10 percent increase in cigarette prices reduces consumption by around 4 percent, and the effect is often larger in lower-income countries, where people are more sensitive to price.

Young people and people with lower incomes are especially responsive, so higher taxes can prevent young people from starting to smoke.

Benefits of tobacco taxes

• Fewer deaths and illnesses from cancer, heart disease and lung disease.
• Revenue for governments, which can fund health programmes.
• Lower health care costs over time.

Concerns

• Regressive burden: poorer smokers spend a larger share of income on tax. Supporters respond that poorer people also gain the most health benefits, since they are more likely to quit.
• Smuggling: very high taxes can encourage illicit trade, though evidence suggests good enforcement limits this.

India’s tobacco

India has a large number of tobacco users, including many who use smokeless tobacco like gutka and khaini, and bidis, small hand-rolled cigarettes. Bidis have historically been taxed at much lower rates than cigarettes, partly because many poor workers, especially women, roll bidis for a living. Health experts argue for raising taxes on all forms of tobacco.

Under India’s GST reforms, most tobacco products are taxed in the highest bracket along with additional levies.

The WHO framework

The WHO Framework Convention on Tobacco Control, which entered into force in 2005, is an international treaty committing countries to measures such as higher taxes, advertising bans and health warnings. India is a party to it.