(India should jettison its flawed tobacco taxation & comply with WHO norms)

'FROM sleek packaging to exotic flavours, bidis getting makeover to lure urban smokers'- so went the headline to the news date-lined 10th June 2015 carried by a leading Indian business daily.

Such analysis is done after the presentation of annual budget almost every year. It shows continuation of a policy that favours production and usage of low-cost bidis/beedis. It is ostensibly a pro-poor (pro-death in effect) stance of India's tobacco products taxation policy.

While the Government hikes the excise duty on cigarettes almost every year, it shies away from doing the same in the case of bidis. Such skewed taxation is not reducing the country's total tobacco consumption. It is merely shifting the demand from high-taxed expensive cigarettes to short-length cigarettes and to bidis.

The excise duty on hand-rolled and machine-rolled bidis has been increased only twice during the last 9 years, the last revision being done in 2012. The Government continues to exempt small producers of bidis and the ones that make unbranded bidis.

Low-cost and low-priced Bidis account for the lion's share of tobacco usage in the country. These are leaf or paper-rolled smoking products consumed by poor people.

The country is the second largest producer and consumer of tobacco products in the world. A large variety of tobacco products, smoked and non-smoked ones, are consumed.

As put by a study 'The Economics of Tobacco and Tobacco Taxation in India' published in 2010: "Taxes on bidis have historically been close to zero in rupee terms. The result is that tobacco products have become increasingly affordable in India over the past decade."

The official strategy of treating bidis with kid gloves has led to a piquant situation: The Government is running a deficit for last five years in operation of a statutory fund created in 1976 for the welfare of workers engaged in production of bidis. The deficit in Beedi Workers Welfare Fund amounted to Rs. 1.94 billion in the year ending 31 March 2014.

The Fund is financed from levy of a small cess on only those bidis that are subject to excise duty. As bulk of bidi production is exempted from excise and hence cess, the Fund is unable to meet its growing expenses.

According to India's country report submitted to WHO in November 2012 under the Framework Convention on Tobacco Control(FCTC), about 2.2 million tribal people are engaged in plucking and sale of tendu (Coromandel Ebony) leaves which are used for making bidis. Women constitute 76% of total employment in bidi manufacturing. There are 5.5 million bidi hand rollers, 85% of whom are women and children.

The Government's soft approach towards bidis taxation is also not in compliance with World Health Organization's (WHO's) FCTC and Technical Manual on Tobacco Tax Administration (TMTTA).

India ratified FCTC in February 2014 and is expected to submit its country report under FCTC framework in early 2016. We would then know the precise degree of non-compliance by the country with FCTC.

Article 6 of FCTC requires signatory countries to use tax and price policies to reduce tobacco use. The implementation this provision came up for discussion at the Conference of the Parties (COP) to the WHO FCTC held in Moscow during October 2014.

COP recommended: "All tobacco products should be taxed in a comparable way as appropriate, in particular where the risk of substitution exists. Parties (countries) should ensure that tax systems are designed in a way that minimizes the incentive for users to shift to cheaper products in the same product category or to cheaper tobacco product categories as a response to tax or retail price increases or other related market effects."

COP also suggested that the countries should establish coherent long-term policies on their tobacco taxation structure and monitor on a regular basis including targets for their tax rates, in order to achieve their public health and fiscal objectives within a certain period of time.

India lacks a holistic tobacco taxation policy and prefers to maintain complex tax structure on cigarettes and follow a soft approach towards most of other tobacco products.

The Government also lacks the political will to induce tobacco farmers to shift to cultivation of other crops without affecting their existing level of profit per hectare.

As put by TMTTA, "Of all of these interventions, a significant increase in tobacco product taxes and prices has been demonstrated to be the single most effective and cost-effective intervention for reducing tobacco use, particularly among the young and the poor. Given the evidence on the effectiveness of higher tobacco product prices in reducing tobacco use, higher tobacco taxes are a central element of the WHO FCTC."

Discussing the case of India, it says: "a price increase of 52.8% on bidis through increased taxes would avert about 4.6 million premature deaths among current bidi smokers, while a cigarette price increase of 153% through increased taxes would avert an additional 2 million premature deaths among current cigarette smokers. In addition, by deterring the current cohort of Indian youth from initiating smoking, these price increases would prevent an additional 1.6 million premature deaths caused by cigarette smoking and 10.9 million premature deaths caused by bidi smoking."

TMTTA has, however, acknowledged the challenges of resolving the issues of poverty and loss of employment in bidi segment that would result from heavy taxation of bidis.

It says: "Tobacco taxes and poverty concerns about the burden of tax increases on the poor are another barrier to higher tobacco taxes. Indeed, in some countries, tobacco tax levels and structure are in part designed to produce low prices on some brands or products in order to keep them affordable for poor users. Rather than being 'pro-poor', a policy like this results in greater tobacco use among those on lower incomes."

It adds: "As a consequence, the poor end up bearing a disproportionate share of the health and economic burden of tobacco, with differences in tobacco use among the rich and poor accounting for much of observed socioeconomic differences in health."

At present, India is bearing colossal healthcare burden due to tobacco-linked diseases and deaths. A joint Indian Government-WHO study captioned 'Economic Burden of Tobacco Related Diseases in India', has estimated that the total economic costs attributable to tobacco use at Rs 1045 billion for 2011.

This cost includes both the direct and indirect costs from all diseases caused due to tobacco use for persons aged 35-69 years, according to the study released in 2014.

TMTTA urges countries to increase tobacco taxes by enough to reduce the affordability of tobacco products. It goes by the World Bank norm that suggests taxes should account for 67% or more of the retail price of tobacco products to discourage tobacco consumption.

Way back in 1999, the World Bank opted for this norm after noting the tax accounts for two-thirds to four-fifths of the retail price of cigarettes in countries with comprehensive tobacco control policies. It is not clear how far India has to go in taxation of cigarettes to comply with the World Bank norm. It has to, however, cover a long distance so for as taxation of bidis and other tobacco products is concerned.

The data on share of all taxes in the average price of cigarettes and of other tobacco products is hard to come by. The availability of statistics has become more difficult with the Central Government empowering state governments a few years back to increase their revenue receipts through VAT on tobacco products. The States have accordingly introduced varying rates of VAT and they keeping revising the tariff.

The Central Government took this VAT-related decision as part of the package to compensate States for phase out of Central Sales Tax (CST) by 1 st April 2010. CST phase-out was planned to pave the way goods and service tax (GST).

The Central Government has lately given more emphasis to dissuading public against tobacco consumption through statutory display of disgusting pictures on cigarette packs. Its move to extend this approach to bidis has encountered stiff resistance from bidi lobby. In March 2015, The Ministry of Health and Family Welfare has put on hold the enforcement of amendments to the Cigarettes and other Tobacco Products (Packaging and Labeling) Rules with effect from 1st April 2015.

Educational approach towards discouraging tobacco consumption is good. But it has to be complemented with an all-inclusive taxation policy.