Goods and service tax reform and estimated impact on tobacco products in India

Goods and service tax reform and estimated impact on tobacco products in India

Blog Article

Background The indirect tax system in India is undergoing a major overhaul with a national Goods & Services Tax (GST) expected to be rolled out in 2017.This paper analyzes the Incense potential impact of the new tax rates on tobacco proposed under GST on consumption and tax revenues for different tobacco products in India.Methods We use the most recently available data on prices, tax rates, and tax revenue for the most consumed tobacco products in India, and forecast their tax burden in the fiscal year directly prior to the GST reform in 2017-18 using tobacco product specific inflation rates.From this benchmark scenario, we simulate the impact of the proposed tobacco tax reform options under GST on tobacco consumption, tax revenue, and affordability using own-price elasticities of demand, specific to different tobacco products and income tertiles.

Results We find that the proposed GST rate of 28% plus cess would sensory play increase cigarette consumption by 1.7% and increase tax revenue by about 0.4 percentage.On the other hand, a 28% GST rate applied on bidis would result in a 1.

5% reduction in consumption while increasing tax revenue by 33.14%.For smokeless tobacco products, the proposed increase of 28% plus cess would result in a substantial increase in consumption by 7% while simultaneously decreasing revenue by 22%.Conclusions The impact of the current GST proposals to reform the tobacco tax system is mixed, as it would decrease in the consumption of bidis but increase the consumption of both cigarettes and smokeless tobacco products.

To more significantly reduce tobacco use and raise extra revenue, the government of India should continue to impose the existing excise in addition to the proposed GST.