Tobacco and 'Sin Tax': How Effective Has India Been at Regulating Tobacco?

Tobacco consumption is one of the leading causes of preventable death and disease globally. In India, it is estimated that over a million people die each year due to tobacco-related diseases. To curb tobacco consumption and its negative impacts, governments around the world have implemented various regulations and taxes, including in India.

In this article, we will examine the effectiveness of India's tobacco regulations and taxation policies, also known as the "sin tax".

Tobacco Regulations in India

The Indian government has implemented various regulations to curb tobacco consumption, including the implementation of warning labels on tobacco products, restrictions on advertising and promotion, and a ban on smoking in public places.

In 2003, the Indian government introduced the Cigarettes and Other Tobacco Products Act (COTPA), which placed restrictions on the advertising and promotion of tobacco products and a ban on smoking in public places. The act also required the inclusion of warning labels on tobacco products which must cover at least 40% of the product packaging.

In recent years, the Indian government has further strengthened its tobacco regulations, including increasing the size of warning labels to 85% of the product packaging and banning the sale of single sticks of cigarettes. The government has also implemented restrictions on the sale of tobacco products to minors and increased fines for selling tobacco products to minors.

Tobacco Taxation in India

In addition to regulations, the Indian government has implemented various taxes on tobacco products, commonly referred to as the "sin tax". The primary objective of these taxes is to increase the price of tobacco products and discourage consumption.

The Excise Duty on cigarettes in India has two components: a specific duty, which gets levied per thousand sticks, and an ad valorem duty, which is a percentage of the wholesale price. The government has increased the specific duty and ad valorem duty several times over the years, leading to a significant increase in the price of cigarettes.

In addition to the Excise Duty, cigarettes are also subject to Value-Added Tax (VAT), which varies from state to state. The combined effect of the Excise Duty and VAT has resulted in a significant increase in the price of cigarettes in India.

Bidi and cigarettes made up 8% of the market share in 2017–18, while non-cigarette tobacco products like chewable and other products had a market share of 69%, according to the Tobacco Market in India (2018–2023) Report.

In addition, when considering the amount of tax revenue generated from the sale of cigarettes and the government's involvement in the tobacco industry, questions are raised about the validity and sincerity of the government's concerns. Despite making up only about 10% of total cigarette consumption, legal cigarettes generate 86% of all tax revenue received by the government. Therefore, if e-cigarette sales increase while traditional cigarette sales decline, the government would lose a significant source of tax revenue.

Effectiveness of Tobacco Regulations and Taxation in India

Despite the various regulations and taxes implemented by the Indian government, tobacco consumption in the country remains high. According to the World Health Organization, over 34% of adults in India consume tobacco products.

One of the reasons for the high level of tobacco consumption in India is the widespread availability of cheaper, unregulated products, such as bidis, which are hand-rolled cigarettes made from loose tobacco leaves. These products are not subject to the same regulations and taxes as cigarettes, making them more affordable for consumers.

In addition, the enforcement of regulations and taxes on tobacco products remains a challenge in India. The government has limited resources to enforce the regulations and taxes, and the tobacco industry has been successful in finding loopholes and avoiding penalties.

Despite these challenges, there is evidence to suggest that the regulations and taxes had a positive impact on tobacco consumption in India. The increase in the price of cigarettes due to the Excise Duty and VAT has led to a decrease in the demand for cigarettes, particularly among young people. Additionally, the restrictions on advertising and promotion have reduced the visibility of tobacco products and reduced the overall appeal of tobacco products.

Conclusion

India has implemented various regulations and taxes on tobacco products to curb consumption and reduce the negative impacts of tobacco. While the regulations and taxes have had a positive impact, the high level of tobacco consumption in India remains a challenge.