With the introduction of the goods and services tax (GST) in 2017, all tobacco products — cigarettes, bidis and smokeless — attract the highest tax rate of 28%. In addition to GST, smokeless tobacco and cigarettes attract compensation cess, which varies depending on the length of the cigarettes. Also, there is an ad valorem of 5% for cigarettes of all length except more than 75 mm, which attract ad valorem of 36%.
The National Calamity contingent duty (NCCD) which was applied to tobacco products pre-GST continue to apply post-GST as well. Yet, with all these taxes, the final price of cigarettes increases by only 0.18%. In the case of bidi and smokeless tobacco, the final price hike is 8.8% (about ₹1.30 per pack of 25 sticks) and 6%, respectively.
After being subsumed in the GST back in 2017, excise duty for cigarettes was reintroduced in the latest budget but at a nominal rate of ₹5 per 1,000 sticks. “If you combine all taxes there is only a marginal increase of less than 1 percentage point for cigarettes,” says Dr. Rijo M John from the Centre for Public Policy Research, Kochi, and corresponding author of a paper published in Tobacco Control.
Before the introduction of GST, many States levied value-added tax (VAT) on the price inclusive of excise duty. VAT increased the price of tobacco products. But with the introduction of GST in 2017, VAT has been subsumed. “As a result, tobacco products have become more affordable in the last two years. Also, the GST is not linked to inflation making tobacco products affordable,” says Dr. John.
The World Health Organisation recommends that taxes on tobacco products should comprise 75% of the retail price. “But in India tax on cigarettes is only 53% of the retail price. The tax burden in the case of bids is 22% and 60% for smokeless tobacco,” Dr. John says.
Any change in the GST slab and compensation cess can be made only by the GST council. The union government can only increase excise duty. “Given that the excise duty has been re-introduced on tobacco products, this becomes the primary avenue available for the central government to increase the price of tobacco products annually to reduce consumption,” he says.