Context

There is no doubt that tobacco use is highly detrimental to public health. We have to find the ways and the means to reduce the demand for tobacco among existing as well as aspiring users.

Impact of tobacco

• Tobacco is a product that kills more than 13 lakh Indians every year.
• Annual burden: The annual economic burden from tobacco use is estimated to be ₹177,340 crore which is more than 1% of India’s GDP.
• About 27 crore people above the age of 15 years and 8.5% of school-going children in the age group 13-15 years use tobacco in some form in India.

Are price and tax measures effective against tobacco use?

• When tobacco products become more expensive, people either quit using them or use them less, and it incentivises many to not initiate the habit.
• Because it hurts both revenue and profits, the tobacco industry, globally, is always devising tactics and narratives that will pre-empt any kind of tax increases on tobacco products.
• The narrative of “increasing illicit trade” is something the tobacco industry has historically used to pre-empt potential tax increases on tobacco products in most countries around the world.
• The story is no different in India.
• In a recent report by the Tobacco Institute of India, it was said that the illicit cigarette volume in India has grown by 44% from 2011 to 2019 while adding that high and increasing tax rates provide a profitable opportunity for tax evasion and encourage growth in illegal trade.
• A study published in 2018 which used a survey of empty cigarette packs collected from retail outlets across different cities in India estimated that illicit cigarettes constitute 2.7% of the market.
• The second study published in 2020 used tax-gap analysis to estimate that the percentage of illicit cigarettes was 5.1% in 2009-10 and 6.6% in 2016-17.

Are taxes and prices key determinants of illicit trade?

• It is to be noted that taxes and prices are not the key determinants of illicit trade.
• There is sufficient evidence in the literature on illicit trade in cigarettes that shows tax increases only have a minimal impact, if at all, on illicit trade.
• There are several countries where tobacco taxes are quite high and yet have low levels of illicit trade, while there are also countries with high levels of illicit trade despite having relatively low tax rates.
• Several factors such as the quality of tax administration, the strength of the regulatory framework, government commitment to control illicit trade, the strength of governance, social acceptance, and the presence of informal distribution networks are known to play a larger role in determining the scale and the extent of an illicit market.

Way forward

• WHO protocol: Eliminating all forms of illicit trade in tobacco products through a package of measures is one of the major objectives of the Protocol to Eliminate Illicit Trade in Tobacco Products under the World Health Organization’s Framework Convention on Tobacco Control.
• The Protocol provides the tools and the measures to eliminate or minimise illicit trade which includes strong governance, establishing an international track and trace system, and securing supply chains.
• India has already ratified the World Health Organization Protocol and it should now show leadership in implementing these measures to effectively address even the relatively lower levels of illicit trade.

Conclusion

There is no scientific or public health rationale not to increase tax on tobacco products for unfounded fear of increasing illicit trade.

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