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Dear Pranab Mukherjee,
You have a big budget problem. Your fiscal deficit is huge, but you cannot easily increase taxes or cut spending during a recession. One easy way out will be to raise taxes yet again on cigarettes. Tobacco causes cancer, so every tax increase can be portrayed as a life-saving measure.
Yet, this is rank hypocrisy. Indians consume an estimated one trillion beedis per year, against only 106 billion cigarettes. So, taxes on cigarettes leave out 90% of smokers. You must equalise taxes on beedis and cigarettes. If you equalise at the rate for non-filter micro cigarettes, you will get an additional Rs 15,000 crore per year. And if you equate at the standard filter cigarette rate, you will get an additional Rs 80,000 crore a year. A bonanza!
Why have finance ministers over the years not done this? Because the beedi is the poor man's smoke, and the beedi industry employs millions. Yet, these are horrifying, cruel reasons for tax concessions for proven killers. Yes, the poor buy cheap products, but is a cheap killer like the beedi the right way to help the poor? Surely, they will gain if beedis are made more expensive, obliging them to reduce or stop smoking, and improving their health?
Dr Prabhat Jha of Toronto University estimates that 930,000 Indians will die in 2010 of tobacco-related causes (respiratory, vascular and neoplastic). Deaths from these causes are increased two to three times by smoking.
Dr Jha says that smoking even a few beedis per day is harmful. Nicotine is addictive, but mildly so: people give up smoking when high cost and social inconvenience provide proper incentives. In the US and Europe, 30% of all smokers have given up the habit. But in India only 2% of beedi smokers ever give it up, because costs and social pressures are low.
The beedi industry employs millions. Yet, Pranab babu, can you with a straight face justify employing millions in order to kill millions of others, slowly and painfully? If indeed you regard labour-intensive killing as an industry to be encouraged with concessional taxation, please bring Dawood Ibrahim back to India and make him an adviser in the Ministry of Industrial Development. He knows a thing or two about labour-intensive ways of killing people slowly with lots of pain.
A recent study by Emil Sunley, an IMF consultant, estimates that beedis account for 77% of all tobacco consumption but only 5% of excise taxes. His data refer mostly to 2007-08, but the dimensions of the problem have not changed materially since. Sunley says that the tax per thousand is Rs 14 for handmade beedis and Rs 26 for machine-made ones. For cigarettes, the tax per thousand varies from Rs 168 for micro non-filter cigarettes to Rs 819 for the standard 70 mm filter cigarette and a whopping Rs 2,163 for filter cigarettes longer than 85 mm.
Even the low duty on beedis is largely evaded by cottage industries producing mainly unbranded beedis. Only 360 billion of the estimated trillion beedis produced actually pay taxes. Sunley suggests banning unbranded beedis, which hardly ever pay tax. Tobacco curers, blenders and processors should be obliged to report to whom they sell tobacco, helping check evasion by small or undeclared beedi producers
Next, the tax on hand-made and machine-made beedis should be equalized. Technology will then shift production gradually towards machine-made production in factories, where tax collection is easier and evasion more difficult. Some producers split their operations into several small companies to avoid taxes, and this can be countered by clubbing together all companies and factories of a group for tax purposes.
Next, the government should equate the tax on cigarettes and beedis. Obviously this cannot be done in one go. But the government should announce a phased programme to equate taxes at the minimum cigarette level over three years, raising beedi taxes every six months to gradually reach the minimum cigarette tax level of Rs 168 per thousand. At this level, the exchequer should get an additional Rs 15,000 crore in tax. Then over the next few years all cigarette taxes and beedi taxes can be raised to the level levied on standard 70 mm filter cigarettes, which in 2007-08 was Rs 819 per thousand. This should increase tax revenue by around Rs 80,000 crore.
Finally, Pranab babu, beedi packets should have the same pictorial health warning that is now mandatory for cigarettes. You can improve the health of poor Indians as well as government finances by treating cigarettes and beedis as hazards that should be taxed alike.
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