Experts call for substantial tax hike on tobacco products

Dr Jaya Kumar Gurung has been conducting research on consumption of tobacco and tobacco products for a long time. He is disappointed to see more and more youths getting addicted to smoking. 

He is surprised that the government is remaining oblivious to the fact that tobacco consumption is killing an average of four Nepalis every hour. Last year, he met with the then Finance Minister Janardan Sharma and senior officials to inform them about the precarious situation.

“I went right to the doors of the finance ministry and requested then Minister Janardan Sharma to bring programs to control consumption of tobacco products. But he told me cigarettes had been requesting him not to increase taxes on cigarettes and tobacco products,” Dr Gurung, who is affiliated to the Nepal Development Research Institute, said. He tried to meet the incumbent finance minister, but was denied appointment.

Powerful traders, helpless government

Tobacco consumption has emerged as a major public health problem in Nepal. Every year, 37,529 people die due to its use. Senior ENT specialist Dr  Dhundi Raj Poudel accuses the government of being a mute spectator even as consumption of tobacco products is affecting all organs in the human body. “Tobacco traders seem powerful while the government is helpless,” Dr Poudel said. “People are falling into the trap of tobacco products. Some are dying premature deaths, but the guardian government is remaining indifferent.”

According to Gurung, about 34 percent of the population consumes tobacco products. The use of new tobacco products like hookah and e-cigarettes is increasing, especially among youths. “The consumption of tobacco products causes cancer, and respiratory and heart diseases. If we calculate the direct or indirect costs of treatment for these diseases, loss of productivity of the patients, and the cost of deaths, the annual loss amounts to billions of rupees,” Dr Gurung added.

In fiscal year 2022/2023, the government collected Rs 30.61bn through different taxes from tobacco products. “Considering the direct or indirect costs of treatment for diseases caused by tobacco consumption, loss of productivity of patients, and the cost of deaths, the annual loss amounts to Rs 44bn. This loss calculation does not include the losses caused by smokeless tobacco products,” he said. “Even after tax revenue is factored in, the country is suffering a loss of Rs 13bn every year.”

Call to raise taxes

Although the World Health Organization (WHO) has set a benchmark of imposing a 75 percent tax on tobacco products, Nepal is levying only around 41 percent tax. The tax rates in Nepal are the lowest in South Asia, according to Dr Gurung. “If the excise duty on tobacco products is not significantly increased in the coming budget, we will have to understand that the government is not serious about this issue, and that it is working under the pressure and influence of tobacco producers,” he added.

Taxes on tobacco products account for only 2.59 percent of total tax collection in Nepal. In comparison, Bangladesh collects 9.53 percent of its taxes from tobacco products.  Among South Asian countries, Sri Lanka has the highest tax rate of 77 percent on tobacco products followed by Bangladesh (73 percent), Pakistan (60.78 percent) and India (57.6 percent). Neighboring China levies 55 percent tax on tobacco products.

The government had been increasing taxes on tobacco products by around 10 percent annually in the past. In the fiscal year 2023/24, it raised such tax by only around three percent. “Government officials say increasing taxes on tobacco products will lead to an increase in illegal trade and a loss of revenue. This is an unsubstantiated argument. Producers have managed to influence policymakers through lobbying tactics,” added Dr Gurung.

Stakeholders have suggested that the government raise taxes on tobacco products by at least 35 percent in the coming fiscal year. This will mean an additional Rs 14bn revenue for the government, according to Dr Gurung. Economist Dr Devi Prasad Prasain said since the government revenue is not becoming sufficient to cover even the regular expenses, it is time to increase taxes on tobacco products. “Since the condition of manufacturing industries and businesses is fragile, it is difficult to increase tax rates for them,” Dr Prasain said. “This is, therefore, the right opportunity to increase taxes on tobacco products as it will generate revenue and also benefit public health.”

Dr Bhakta Bahadur KC, chief of the Health Promotion and Tobacco Regulation Section at the Ministry of Health and Population, also suggests increasing taxes to reduce tobacco consumption. “We regularly correspond with the finance ministry advocating for higher tax rates. We have already put forth our suggestions for the upcoming budget,” Dr KC said. “It is necessary to increase the health risk tax, excise duty, and value-added tax on tobacco products.”