extinguishing the main narrative of the tobacco industry

Tobacco is a product that kills more than 1.3 million Indians every year. The annual economic burden from tobacco use is estimated to be ₹177,340 crore, which is more than 1% of India’s GDP. In India, about 270 million people above the age of 15 years and 8.5 percent of school children in the age group of 13-15 years use tobacco in some form or the other. There is no doubt that tobacco consumption is highly injurious to public health. We need to find ways and means to reduce the demand for tobacco among existing and interested users.

effect of tax

A large body of literature cites price and tax measures as one of the most cost-effective measures to reduce demand for tobacco products. When tobacco products become more expensive, people either stop using them or use them less, and this encourages many people not to make the habit. Because it hurts both revenue and profits, the tobacco industry globally is always working out strategies and narratives that will pre-empt any tax increase on tobacco products. The narrative of “increasing illegal 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 in India is no different. The tobacco industry led by ITC Limited has ensured that the illegal cigarette trade accounts for 25% of the cigarette market in India. In a recent report by the Tobacco Institute of India, a representative body of the cigarette industry, it was stated that the volume of illegal cigarettes in India grew by 44% from 2011 to 2019, while the high and rising tax rates provide a profitable opportunity. For tax evasion and to encourage increase in illegal trade.

Estimates from two studies

In the interest of regulating tobacco use and protecting public health, it is important to examine whether there is any truth to these industry claims. However, when one looks deeper, it is easy to see that neither the estimates nor the methods used to derive them are supported by any transparent studies. On the other hand, in recent years there have been two studies published in peer-reviewed scientific journals that use a widely accepted best practice method to estimate the percentage of illicit cigarettes in the Indian market. First study published in 2018 Which used a survey of empty cigarette packs collected from retail outlets in various cities in India, estimated that illegal cigarettes account for 2.7% of the market. second Study published in 2020 Using a tax-gap analysis, it is estimated that the percentage of illicit cigarettes was 5.1% in 2009-10 and 6.6% in 2016-17. Both these studies used transparent and repeatable methods and their estimates of the illegal market were nowhere near the 25 percent figure that the tobacco industry in India is using to influence public discourse on tobacco taxation. .

The economic burden of tobacco use in India increased by 22% in real terms from 2011 to 2017. There has been a real decline of 3% in Goods and Services Tax (GST) revenue from tobacco products in the last two financial years. On the other hand, ITC’s annual report shows that there has been an average growth of 3% every year in the last 10 years. It should also be noted that despite all the business diversification done by ITC over the years, about 85% of its profits still come from the cigarette business alone.

Exaggerating both the scale and extent of the trafficking has been a tool the tobacco industry has historically used to advocate against tobacco tax increases. However, it should be noted that taxes and prices are not the major determinants of trafficking. There is substantial evidence in the literature on cigarette trafficking to show that tax increases have only minimal impact on trafficking. There are many countries that have high tobacco taxes and yet low levels of trafficking, while there are also countries with high levels of trafficking despite relatively low tax rates. Several factors such as quality of tax administration, strength of regulatory framework, commitment of the government to control trafficking, strength of governance, social acceptance and presence of informal distribution network are known to play a large role in determining the scale. . and the limits of an illegal market.

WHO Protocol

A recent study on the illegal cigarette market (https://bit.ly/32SGhwI) estimates that the estimated percentage of the illegal cigarette market in India is much lower than most countries there and much higher than the world average of 11.2%. is down. in 36 countries. Eliminating all forms of illicit trade in tobacco products through a package of measures is one of the key objectives of the World Health Organization’s Protocol on Eliminating Illicit Trade in Tobacco Products under the Framework Convention on Tobacco Control. The Protocol provides tools and measures to eliminate or reduce trafficking, including strong governance, establishing an international track and trace system, and securing supply chains. India has already ratified the World Health Organization protocols and should now take the lead in implementing these measures to effectively address even relatively low levels of trafficking.

There has been no significant tax increase on any tobacco product in India in the last four years since the implementation of GST in 2017, which has made tobacco products more affordable as shown in recent studies. There is no scientific or public health justification for not raising taxes on tobacco products for unfounded fears of increasing trafficking.

Rizo M. John is a health economist and assistant professor at Rajagiri College of Social Sciences, Kochi, Kerala