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Compensation Cess on tobacco products can generate revenue for vaccinations – Doctors, smokers, public health groups to GST Council


BENGALURU, MAY 26, 2021: Public health groups along with doctors and smokers are urging 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 May 28, they are urging it to consider an extra-ordinary 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 also reduce their affordability and therefore consumption.

The 2nd wave of COVID-19 has been a 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 by 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 states 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.

“Unprecedented financial resources will be needed for the country to recover from the economic shock COVID-19 has created. Increasing compensation cess on all tobacco products will be a win-win proposition as it will bring in substantial revenue for the Government while motivating millions of tobacco users to quit and preventing youngsters from initiating tobacco use” said Ms Seethalakshmi S, director (policy and strategy), Institute for Policy Research, Bengaluru.

Tobacco use increases risk for severe COVID-19 infection, complications, and death. Available research suggests that smokers are at greater risk of developing severe disease and dying from COVID-19. Over 3 lakh people have died to date in India in the last 14 months because of COVID. Tobacco use which is a slow-moving pandemic itself claims the lives of 13 lakh Indians each year. It is critical than ever before to keep tobacco products out of the hands of vulnerable populations like youth and the underprivileged sections of society.

“There is growing evidence that smoking and smokeless tobacco increases the risk for severe Covid 19 infection. Smoking worsens lung function and reduces immunity. Tobacco users who develop Covid infection have more complications and a greater risk of fatality. It is urgent to increase taxes on all tobacco products to reduce their affordability & consumption and limit the increasing health and fatal damages and vulnerability to COVID 19 infection” said Dr Vishal Rao, Renowned Oncologist and Member of High Power Committee on Tobacco, Government of Karnataka.

The revenue generated through higher taxes can be used for Covid treatment and vaccination. This way, doubling the tax can triple the revenue and reduce the deaths by half, Dr Vishal added.

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% for cigarettes, 22% for bidis and 63.8% for smokeless tobacco. This is much lower than the World Health Organization (WHO) recommended tax burden of at least 75% of the retail price for all tobacco products. According to the WHO, raising the price of tobacco products through tax increases is the most effective policy to reduce tobacco use. Higher tobacco prices decrease affordability, encourage quitting among users, prevent initiation among non-users, and reduce the quantity consumed among continuing users.

“Smoking has caused me a lot of suffering and misery. I realised that my habit of smoking has resulted in severe COVID infection. My family is also suffering.  I urge the government to make tobacco products so expensive that these become unaffordable and people are saved from tobacco addiction”, says Mohan (name changed), a smoker recovering from COVID infection.

India has the second-largest number (268 million) of tobacco users globally, and of these 13 lakhs die every year from tobacco-related diseases. Nearly 27% of all cancers in India are due to tobacco. Tobacco use in all forms (smoking/ chewing) is associated with severe COVID-19 casualties as per Ministry of Health and Family Welfare and Indian Council of Medical Research. The annual economic costs from all diseases and deaths attributable to tobacco use are estimated to be Rupees 177,341 crores in 2017-18 amounting to 1% of India’s GDP. This will continue to grow post-COVID.

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