Tax Revenue

By Chirag Begwani and Anandini Gupta India is the second largest consumer and producer of tobacco in the world. Each year, the Indian government earns over Rs. 70,000 crores from the taxation of tobacco products. While this may appear to be a massive benefit to India’s fiscal position, behind these numbers lie a massive public health crisis. The Global Adult Tobacco Survey of India for 2016 reveals that more than 1.35 million Indian lives are lost to tobacco-related illnesses annually. With the phasing out of the GST Compensation Cess in 2026 approaching, policymakers have been focused on the continued sustenance of revenue from tobacco. However, the more fundamental question that requires attention is: where does all the money go? Despite tobacco taxes making up 2.2% of India’s gross tax revenue, devolution of funds towards initiatives such as the National Tobacco Control Programme, aimed at curbing tobacco use and addiction, is less than 0.07% of this revenue. As per a study by the WHO, for every Rs. 100 collected in excise tax on tobacco products, Rs. 816 is incurred by consumers as treatment costs. This disparity demonstrates how the government profits at the cost of consumers. Costs with no benefits For the taxes on tobacco to achieve the desired goal, it is crucial to couple taxes levied on tobacco with initiatives geared towards reducing tobacco use and dependency. To this effect, the government must ring-fence a fixed portion of the revenue collected from tobacco taxation towards de-addiction programmes, awareness campaigns, and development of infrastructure. The rationale for such a measure finds support in the very principle behind levying “sin” taxes. A relatively higher rate of tax is levied to meet the social costs of the harm caused by tobacco. Therefore, the revenue generated from tobacco must be used to counter its damaging effects on public health and well-being. This allocation presents both ethical and constitutional grounds. While not enforceable by law, Article 47 provides guiding principles urging actions to improve public health. This disconnect reveals a contradiction at the heart of India’s tobacco control policy. If tobacco taxes are meant to discourage use, why is the revenue not used to support de-addiction, therapy, nicotine replacement therapy (NRT)? The current approach is self-defeating. It transforms a public health tool into a mere fiscal tool. Argument of accountability Arguably, using public funds for self-inflicted harm could appear misguided. But this view ignores the realities of tobacco dependency. Intergenerational exposure, lack of health education, and socioeconomic vulnerability often play a key role in addiction. According to the Global Adult Tobacco Survey, tobacco use is disproportionately higher among lower-income and less-educated populations. They are often trapped in cycles of addiction reinforced by systemic neglect. Moreover, the costs of tobacco use are not borne by the individual alone. Families suffer income loss due to illness or premature death, face higher risks of health issues due to second-hand smoke, and severely increase cases of preventable diseases. Beyond individual families, this also presents an overburdening of healthcare resources. These ripple effects of tobacco consumption make it a collective concern, not a matter of private responsibility. Global movers Several international initiatives serve as excellent examples for India to replicate. Thailand’s Health Promotion Foundation (ThaiHealth), for instance, is funded through a 2% surcharge tobacco excise, which is directly channelled into nationwide health promotion campaigns, school-based prevention programmes, and cessation support. Similarly, the Philippines utilises its sin tax revenues for healthcare and cessation support under its 2012 Sin Tax Reform Law. The success of these models demonstrates the intrinsic link between revenue collection from harmful goods and its utilisation towards reducing their harm. Reimagining Indian Sin Tax Models India cannot continue treating tobacco taxation as a fiscal tool, detaching output from outcome. Increasing tobacco taxes to 35%—as is currently being discussed by policymakers—will mean little without rethinking revenue utilisation. Legislative mandates designating a fixed percentage of tobacco tax revenues towards infrastructure and initiatives are required for treating illnesses and overcoming addiction related to tobacco. State-level administrations should be incentivised to use a portion of the tobacco taxes to develop local and district-level de-addiction centres, especially in regions where higher tobacco use is prevalent. Awareness programmes should be mandated in schools and colleges to promote early sensitisation among youth, dispel myths about tobacco use, and build long-term behavioural changes among them. Chirag Begwani is a second-year law student at NALSAR University of Law, Hyderabad. He is currently a legal research intern with the Centre for Development Policy and Practice’s Centre for Law, Economics, and Society initiative. Anandini Gupta is a Research Fellow at the Centre for Development Policy and Practice (CDPP), with work experience in finance and communications. She has a Bachelor’s degree in Math/Financial Analysis and Risk Management from the University of Waterloo, Canada.

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