Some public health groups, doctors and economists have urged the GST Council to increase compensation cess on all tobacco products while retaining them at the highest tax slab of 28 per cent.
Increasing compensation cess on tobacco products can help the government garner additional revenue of Rs 190 billion to make up the shortfall in Goods and Services Tax (GST) collection, they said.
The GST Council, the apex body on the integrated tax, is scheduled to meet on December 18.
Taxing tobacco products at the 28 per cent rate and additional compensation cess will not only bring in additional revenue but also reduce tobacco consumption.
Additional revenues collected will support the shortfall and can also be used to support government schemes such as Ayushman Bharat, they said.
The civil society, doctors and economists urged the GST Council members to increase the compensation cess uniformly on all cigarettes to Rs 5,463 per 1,000 irrespective of their size.
Such an increase could potentially increase the GST revenue from cigarettes by about Rs 150 billion while targeting a 10 per cent reduction in consumption.
They also demanded that the compensation cess on all smokeless tobacco products should also be increased to 125 per cent, on average, from the current 104 per cent.
This could potentially increase the GST revenue by about Rs 3 billion while targeting a 10 per cent reduction in consumption.
Considering the extremely low price of bidis which costs only about 65 paisa per stick, the compensation cess can be applied on bidis at the rate of 30 paisa per stick which is expected to result in a retail price of minimum Re 1 per stick.
This could potentially increase the tax revenue from bidis by about Rs 37 billion while targeting a 52-per cent reduction in consumption.
"It is critical that tobacco products are retained in the 28 pc slab and compensation cess is increased on all of them. Increase in tobacco taxation will be beneficial for our country's economy as well as to address public health concerns related to tobacco thus making it a win-win situation," Chief Executive of Voluntary Health Association of India Bhavna B Mukhopadhyay said.
According to economist and health policy analyst Rijo John, most of the GST compensation cess on cigarettes is specific in nature and had not been revised for the past two years.
This has significantly eroded the real value of tax and has made cigarettes, bidis, and smokeless tobacco products highly affordable, threatening to undermine the progress in reduction of the prevalence of tobacco consumption in India, he said.
The present GST rates combined with the compensation cess for all tobacco products are far below the recommended level of the tax burden of 75 per cent by the World Health Organization, John said.
"The total effective tax burden currently for tobacco products in India is only about 49 per cent for cigarettes, 22 per cent for bidis and 60 per cent for smokeless tobacco. This data reveals a far different picture from what the tobacco industry is portraying in their demand for lower taxes.
"As the taxes have not been increased on any of the tobacco products for more than two years, all tobacco products have become more affordable during this time. Hence, increasing taxes on tobacco products are warranted not only for regulating its consumption but also for raising more tax revenue," he said.
"Government should levy uniform and high taxes on all categories of cigarettes, bidis and smokeless tobacco. It should levy cess on bidis just as it does on other tobacco products. There is ample evidence about bidis being the killer and not the pleasure of the poor. It should be made unaffordable for the poor to save them from a lifetime of misery and suffering," Dr Harit Chaturvedi, Chairman of Max Institute of Cancer Care, said.
Tobacco kills more than 1.3 million people each year in India, which is home to the second greatest number of smokers in the world behind China.
Additionally, tens of millions use deadly smokeless tobacco products.
In fact, approximately 130 million people of age 15 and older in India currently smoke and roughly half of all adults are exposed to second-hand smoke at home.
The total direct and indirect cost of diseases attributable to tobacco use was a staggering Rs 1.04 lakh crore in 2011 or 1.16 per cent of India's GDP.