Why increase tax on tobacco products?
In the last eight months of the current fiscal year, the revenue has not been raised as per the target. Foreign aid is also limited to commitments. Information about the government's budget deficit has been made public through mass media. The private sector has sought to reduce interest rates on loans and ease suspicions of an economic slowdown. It seems that a suitable measure in such a situation would be to review indirect taxes levied on tobacco products, which have traditionally been considered an important sector for revenue mobilization. Consumption of such products causes financial ruin and human loss in the long run. Even in Nepal, about 32 percent of people aged 15 to 79 years consume one or the other tobacco products. Studies have confirmed that long-term users of tobacco suffer from serious diseases such as cancers and CVDs. It has been proved that people who consume things like khaini, tobacco, zarda and gutka also get cancer in different parts of the body, including the mouth, throat, and the intestine. Adam Smith, the father of economics, suggested 250 years ago that it would be appropriate to tax tobacco, concluding that tobacco is not a necessity for humans. Indeed, no medicinal or nutritional benefit can be found for human beings in any product made from tobacco. According to statistics, in 2019, about 1.04 percent of Nepal's gross domestic product was lost due to the consumption of tobacco products in Nepal. If such items are not consumed, this financial loss can be converted into savings and used in the country's infrastructure development or any other productive work. Looking at the country's foreign trade statistics, it appears that the state always incurs losses in the trade of products like tobacco, electronic cigarettes, hookah and gutkha mixed with tobacco. The data published by the Customs Department for the first eight months of the current fiscal year showed a trade loss of Rs 2.34bn. Moreover, the government imposed a ban on the import of tobacco products (save raw materials) during most of the months of this period. Without such a ban, this loss figure would have been even greater. The World Health Organization, of which Nepal is also a member, has recommended that tax rates on tobacco products be fixed at a rate of up to 75 percent of the retail value. However, since the share of indirect tax in the retail price of such items in Nepal is around 41 percent, there is a lot of scope to increase the tax. It is also an economic belief that taxes make things more expensive. It is recognized in all countries that the prices of tobacco products should be increased by increasing indirect taxes. It is a life-saving interest rather than a revenue need for developed countries to impose higher taxes on these products. Higher taxes are generally imposed for the sake of social welfare. When a developing country like Nepal increases taxes, it fulfills the need for revenue as well as social welfare. A responsible government should increase taxes on products that have a negative impact on the overall health economy of the country. An increase in the prevailing indirect tax rates on tobacco products is necessary and policy makers should act for the benefit of the masses. Indirect taxes on cigarettes and tobacco products in Nepal's neighboring countries are higher than in Nepal. Sri Lanka has 77 percent, Bangladesh 73 percent, Pakistan 61 percent, China 55 percent and India 53 percent indirect tax while in Nepal, it is around 41 percent. Lower taxes on such products in Nepal mean even people living below the poverty line can buy them. Raising taxes on tobacco products will benefit these very people. Hiking indirect taxes on these substances means their prices will go up and they will no longer be affordable to the underprivileged people, thereby sparing them expensive medical bills and financial losses. Nepal imposes excise duty on tobacco products at a quantitative rate. Revenue rates based on volume should be revised annually. If not, the rate of revenue will decrease due to regular price increase and inflation in the economy. Also, due to the increase in per capita income and purchasing power of consumers due to economic growth, those goods also become cheaper. Therefore, there should be a regular increase in the rates of annual excise duty on such goods. Anti-smoking activists want tax and price hikes to reduce the consumption of such products. Yes, the government increased the excise duty on tobacco products last year as well. But a modest increase of 20-25 percent in excise duty does not seem to have affected the prices of those goods because there has been no decrease in their trade any year. There is no reason for the producer to object to an increase in indirect taxes on the price of such goods, which has a direct effect on the purchasing power of the consumer because an increase in indirect taxes directly affects consumers. Therefore, despite the increase in excise duty in the past, the producers have paid income tax by making annual profits. Due to the control over the sale and distribution of smoking products and the ban on consumption in public places, its nature has changed. Looking at the usage situation in the market, it seems that the prevalence of various types of e-cigarettes and hookah has increased. Import data published by the customs department has proved this. An Analysis of the data of the last eight months shows that the import of nicotine e-cigarettes has increased by 1145 percent compared to the corresponding period last year. Despite the ban on the import of tobacco products, the country has seen an increase in the import and use of e-cigarettes and hookah. Therefore, it will be appropriate to increase excise duty on these items. This is a crucial time for the government to influence budget and revenue policies for the fiscal year 2080/81. The policy-makers should increase prevailing indirect taxes on tobacco and nicotine products that have a negative impact on the health of the people as well as the overall economy of the country.
