Goods and service tax reform and estimated impact on tobacco products in India
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1
Health Policy Analyst, India
2
Campaign for Tobacco Free Kids, United States of America
3
World Health Organization, Switzerland
Publication date: 2018-03-01
Tob. Induc. Dis. 2018;16(Suppl 1):A121
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ABSTRACT
Background:
The indirect tax system in India is undergoing a
major overhaul with a national Goods & Services Tax (GST) expected to be rolled
out in 2017. This paper analyzes the potential impact of the new tax rates on tobacco
proposed under GST on consumption and tax revenues for different tobacco
products in India.
Methods:
We use the most recently available data on
prices, tax rates, and tax revenue for the most consumed tobacco products in India,
and forecast their tax burden in the fiscal year directly prior to the GST
reform in 2017-18 using tobacco product specific inflation rates. From this benchmark
scenario, we simulate the impact of the proposed tobacco tax reform options
under GST on tobacco consumption, tax revenue, and affordability using own-price
elasticities of demand, specific to different tobacco products and income tertiles.
Results:
We find that the proposed GST rate of 28% plus
cess would increase cigarette consumption by 1.7% and increase tax revenue by
about 0.4 percentage. On the other hand, a 28% GST rate applied on bidis would
result in a 1.5% reduction in consumption while increasing tax revenue by 33.14%.
For smokeless tobacco products, the proposed increase of 28% plus cess would result
in a substantial increase in consumption by 7% while simultaneously decreasing
revenue by 22%.
Conclusions:
The impact of the current GST proposals to
reform the tobacco tax system is mixed, as it would decrease in the consumption
of bidis but increase the consumption of both cigarettes and smokeless tobacco products.
To more significantly reduce tobacco use and raise extra revenue, the
government of India should continue to impose the existing excise in addition
to the proposed GST.
CITATIONS (1):
1.
Smokeless tobacco taxation: Lessons from Southeast Asia
RijoM John, Amit Yadav, DhirendraN Sinha
Indian Journal of Medical Research