A panel of experts has recommended simplifying the existing ?inefficient? and ?chaotic? tax structure for the tobacco sector to achieve the twin objective of curbing the commodity?s consumption and maximising revenues.

The panel, which includes M Govinda Rao, director of the National Institute of Public Finance and Policy and member of the Prime Minister?s Economic Advisory Council, in a report, has suggested increasing the tax on retail price of bidis from 7% to 33%. For cigarette sticks, it has asked for raising the rate from 43% to 58%, which would lead to ?about 14 million smokers quitting and 27 million children never starting the smoking habit?.

The other members of the panel are Prabhat Jha of Centre for Global Health Research, University of Toronto; Jagdish Kaur, Chief Medical Officer, Director General of Health Services, Ministry of Health and Family Welfare; and Prakash C Gupta, an expert on public health.

The panel has, however, added that the rise in price would not hurt employment in the labour-intensive bidi manufacturing industry. It estimates the measures would give the government an additional revenue of R7,300 crore annually.

?There is enough scope to increase taxation for tobacco products. The tax collection has been unsystematic over the years. There is a need to rationalise the tax structure for tobacco products,? Rao told FE. In the last financial year, the government earned central excise of R13,500 crore and foreign exchange worth R4,163 crore from exports of tobacco and tobacco products.

?Experience of many high income countries suggests high excise taxation with periodic adjustments for inflation paired with other tobacco control efforts can achieve the twin objective of curbing consumption and providing a stable revenue stream with reduced avoidance, leakage and corruption in the tax collection system,? the panel has noted in its report titled ?A rational taxation system of bidis and cigarettes to reduce smoking death in India?.

Rao said average taxation on cigarettes is around 43%, still below the average tax of 63% in high income countries. The panel?s report also noted that the share of tax revenue from bidis and cigarettes has fallen from about 3% of GDP in 2000-01 to less than 1.6% in 2009-10.

But countering this position, an ITC report notes: ?Disproportionate and high taxation on cigarettes has led to a dwindling of its share in tobacco consumption from about 25% in the 1970s to around 15% currently. However, at the same time, total tobacco consumption in the country has continued to grow by way of increased consumption of other revenue inefficient forms of tobacco.?

The panel has not accepted this position. Instead, it has recommended taxing all sizes of cigarettes uniformly at the highest rates, which are currently applied to the longest length of cigarettes. This implies raising the retail price of cigarettes from about R30 (per pack of 10) to about R40, representing a 33% increase in the average price.

For abolishing the distinction between taxation of machine-made and hand-made bidis, the panel recommends increasing the duty to R100 per 1,000 sticks from the current level of R14 for hand-made and R26 for the machine-made bidis. This would raise the average price of a bundle of 25 bidis from R5 to slightly more than R7 or about 40% higher than the current retail price. ?Such a change would raise the tax proportion of retail price from 7% to 33%,? the report noted. ?Even the dramatic reduction in smoking that would result from our proposed tax reforms is unlikely to impact most current jobs. The main consequence would be to slow the entry of additional employees into the bidi industry,? the panel said.

According to the health ministry data, of an estimated 120 million global smokers, nearly 10% are Indians. Bidis account for 85% of total tobacco smoked in the country and cause close to one million deaths annually. Due to the industry?s scattered existence, there are no specific figures on how many bidis are produced annually.