Sin tax below 40% to have negative impact: VHAA

GUWAHATI, Nov 1: Expressing serious concern over the proposal of the GST Council for 26 per cent sin tax on tobacco, public health advocates of Assam said a sin tax rate below 40 per cent will negatively impact revenue and public health.  

The Voluntary Health Association of Assam (VHAA), a NGO, reiterated its demand for at least 40 per cent sin tax with a provision for states’ right to impose top-up taxes on all types of tobacco, including cigarettes, bidis, smokeless tobacco and pan masala to discourage their consumption and addiction amongst people,  especially amongst the youth.   

There is certainly an overarching consensus that goods that are harmful to society categorized as ‘sin’ such as tobacco be taxed at the highest rate under GST as recommended in the Chief Economic Advisor report which seeks a 40 per cent GST sin rate on all tobacco products, the voluntary health body said.

VHAA executive secretary Ruchira Neog said the GST council meeting that concluded on October 20, 2016 proposed a much lower 26 per cent GST sin rate which would have significant impact on the revenue as well as the health of our tion, both of which require serious consideration.

“The ratiole for a sin tax is two-fold, to pay for the damage caused to society by products like tobacco, and secondly, to increase the price and reduce their usage. A 26 per cent rate would defeat both purposes – it would significantly reduce current revenues from tobacco and would actually make tobacco products more affordable and encourage consumption, especially among vulnerable population including children and youth,” Neog said.

According to Dr. Rijo John, Assistant Professor, IIT Jodhpur, “Compared to a GST sin rate of 40 per cent, imposing a 26 per cent sin rate would reduce total tobacco tax revenue by almost one-fifth (17 per cent, or roughly Rs.10,510 crore) even if the government retains the current excise on tobacco products post-GST. Clearly, 26 per cent sin rate will be well below the rate required to maintain a revenue neutral position for tobacco and will significantly reduce tax burden on all tobacco products since the existing average VAT rates themselves are higher than 26 per cent on most tobacco products.”

Tobacco-use imposes enormous health and economic costs on the country. The total economic costs attributable to tobacco use in Assam amounted to Rs 541 crore in 2011 for persons aged 35-69, of which 47 per cent was direct medical costs and 53 per cent was indirect morbidity costs.

“A much lower GST rate would make all tobacco products even more affordable to youth and children, leading to the impact of the tobacco epidemic becoming more severe driving up health care costs and resulting in productivity losses. This will certainly lead to an increased number of fatalities per year, which is not good news for any country. I firmly believe and urge that the government should tax the tobacco products at very high rate to ensure it discourages mass consumption,” said Dr. Ravindar Singh, president of the Assam branch of the Indian Dental Association (IDA).

According to the Global Adult Tobacco Survey (GATS)-2010, Assam is a major victim of tobacco abuse with 39 per cent of adults in the State consuming some form of tobacco – cigarettes, bidis and smokeless (gutka, khaini, etc). 52.6 per cent of males and 25.3 per cent females in Assam are found to use tobacco in some form or the other.

Based on current scerios under consideration, a 40 per cent sin rate combined with the existing excise tax and top-up state rights to tax tobacco appears to be the best scerio for public health and revenue. This will not only help us maintain the current tax burden on tobacco, and will prevent more Indians from falling prey to life-threatening diseases and caught in a cycle of perpetual poverty!