Budget 2021 expectations: Simplify tax structure, reduce affordability of tobacco products: Frank J. Chaloupka, Tobacconomics Director

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January 13, 2021 1:36 PM

Union Budget 2021 Expectations for tobacco sector: Cigarette smoking impacts health - we all see these tiny warnings on cigarette packs - and it affects the society at large.

Tobacco sector Budget 2021 Expectations, Budget 2021 Expectations for Tobacco sectorAmerican professor of economics at University of Illinois at Chicago Frank J. Chaloupka is one of the key authors of the Tobacconomics report.

Union Budget 2021-22 Expectations for tobacco sector: Cigarette smoking impacts health – we all see these tiny warnings on cigarette packs – and it affects the society at large. Even in context of COVID-19, a subject which heavily impinges upon the upcoming budget, the Government had to release an advisory a while back on smokers being far more susceptible to COVID-19, that too with worse observable complications than non-smokers.

Again, this isn’t surprising given the uncontested evidence on the damage caused by smoking to our lungs, the organ primarily targeted by the Coronavirus as well.

Expectations from Budget 2021: Tackle smoking and tobacco consumption

It wouldn’t be far-fetched to say that over the last few decades, one of India’s most persistent health-related challenges has been the menace of smoking and tobacco consumption more broadly. The costs imposed on our society and our economy, both direct as well as indirect have been huge.

American professor of economics at University of Illinois at Chicago Frank J. Chaloupka is one of the key authors of the Tobacconomics report. An expert in the economic analysis of substance use and abuse, Chaloupka has authored over a hundred articles and several book chapters on topics within this area.

Also read| Budget 2021: The budget expectations of common man

Notably, Chaloupka was recently named UIC Researcher of the Year. He has a rare distinction of being the “first winner of the UIC Researcher of the Year award for social science and humanities.”

Interacting with Financial Express Online, Frank Chaloupka shares a broad roadmap for India that can help to tackle the problem of tobacco consumption.

Budget 2021 expectations: Simplify tax structure

India has nearly 26 crore tobacco users today and the consumption of tobacco kills more than 13 lakh Indians every single year. At a global level, the consumption of tobacco kills more than 8 million people every year. Among those, more than 7 million of these deaths are from the direct use of tobacco while around 1.2 million deaths are owing to non-smokers being exposed to second-hand smoke. Clearly, consumption of tobacco isn’t just about one’s health at an individual level, but a societal problem we face instead.

According to Frank Chaloupka, “The scorecard shows that India can take several steps to improve the effectiveness of its cigarette taxes in achieving public health and revenue goals, starting with simplifying its tax structure and implementing large tax increases that would raise prices and reduce the affordability of cigarettes.”

For perspective – In India, as much as 9.5% of all annual deaths can be attributed to the use of tobacco.

Budget 2021 expectations: Reduce affordability of cigarettes

“There is considerable evidence from India and other countries that show enormous costs resulting from tobacco use and the effectiveness of significant tax and price increases in reducing the use of tobacco and its health as well as economic consequences,” Chaloupka adds.

The upcoming union budget, especially in view of the ongoing pandemic, could offer a vision for a healthcare-led recovery.

In such a context, higher taxation of tobacco would not only yield better health outcomes, it would also help mobilize substantially higher revenues in a year where every bit of additional resources counts. Past and current experiences globally have shown such a strategy to work.

Moreover, it would also align India’s policies in line with commitments we have made internationally, including at the World Health Organization (WHO).

Highlighting top scoring countries, he adds, “Top scoring countries like Australia and New Zealand have implemented tobacco taxes that: are simple, applying the same tax to all cigarette brands; are increased regularly, so as to significantly reduce the affordability of cigarettes; and that are high, so that taxes account for a large share of cigarette prices and result in high prices. As a result, both countries have been very effective in using their cigarette taxes as part of a comprehensive strategy to reduce tobacco use.”

Tell us about the International Cigarette Tax Scorecard and how this University of Illinois initiative came into being?

The goal of the scorecard is to provide a clear picture of how countries are doing with their cigarette tax systems. It grew out of several decades of work by my colleagues and I that has demonstrated the effectiveness of higher cigarette taxes and prices in reducing smoking and in raising revenues, as well as the evidence on the most effective and efficient approaches to cigarette taxation.

How does India perform on the various scorecard components, both at a regional level as well as globally?

India does poorly on the scorecard, with a total score that’s below the global average and about the same as other countries in Southeast Asia.

While cigarette prices in India are relatively high, taxes and prices have not been increased enough over time to reduce the affordability of cigarettes; taxes account for a relatively small share of cigarette prices in India and the tiered tax structure, with taxes varying based on cigarette characteristics, creates many opportunities for smokers to switch to cheaper, lower taxed cigarettes when cigarette taxes are increased.

Looking at India in this context, are there particular areas that show up as areas of concern?

In addition to the problematic tiered cigarette tax structure and the lack of tax increases that would significantly reduce cigarette affordability, the tax treatment of other tobacco products, particularly bidis, is problematic. Bidi taxes are relatively low and most bidis are not even taxed, resulting in high rates of bidi smoking.

What are the key steps that India needs to take?

The guidelines for Article 6 of the WHO’s FCTC – the article that addresses tax and price policies – highlight the importance of simple, uniform tax structures (unlike the complex, tiered tax structure in India), tax systems that tax all tobacco products similarly (unlike the tax system in India that taxes other products, particularly bidis, at low rates) and regular tax increases that reduce the affordability of tobacco products (which hasn’t been the case in India).

The key steps India can take are to simplify its tax system, tax all tobacco products similarly, and implement large regular tax increases to reduce the affordability of tobacco products.

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