Context: Rising Non-Communicable Diseases (NCDs) in India highlight the need to reform GST on sin goods through a Health-Focused Tax Framework.
Relevance of the topic:
Prelims: GST rates on Sin goods, India’s Non-Communicable Diseases (NCD) surge.
Mains: Structural gaps in the current GST framework for sin goods.
India’s Non-Communicable Diseases (NCD) surge
- Non-Communicable Diseases (NCDs) account for nearly 63-67% of annual deaths in India.
- Four major NCDs- cardiovascular diseases, cancers, respiratory conditions, and diabetes- cause nearly 80% of premature NCD deaths.
Key drivers of India’s NCD surge:
- Rising consumption of sugar sweetened beverages (SSBs), Ultra Processed Foods (UPFs), Alcohol, and Tobacco.
- Inactivity
- Obesity
- Poor diet
- Pollution
Strong fiscal and policy measures to curb these products are crucial to reverse this trend. The WHO has long advocated higher taxes on tobacco, and now recommends similar measures for alcohol and sugary drinks, with potential taxes on Ultra Processed Foods (UPFs) under review.
Structural Gaps in GST Framework on Sin Goods
- The 139th report of the Parliamentary Standing Committee on Health highlighted that Tobacco products in India remain among the cheapest globally.
- India’s current tax share on Tobacco is well below the WHO-recommended minimum of 75%. It is around 58% for Cigarettes and just 22% for Bidis, revealing a significant gap in effective Tobacco taxation.
- GST rates require consensus among states via the GST Council. This makes annual or inflation-linked revisions difficult, leading to increased affordability of harmful goods over time.
- Alcohol taxation varies widely by State, leading to price disparities, with some States like Gujarat, Bihar, and Nagaland enforcing full bans.
- Sugar Sweetened Beverages (SSBs) are taxed at 28%, but lack a dedicated health cess. Ultra Processed Foods (UPFs) are often taxed at lower rates.
- Tobacco products also attract two key non-GST levies: Central Excise Duty (CED) and National Calamity Contingent Duty (NCCD).
- Though CED was initially subsumed under GST, it was reintroduced in Budget 2019-20 to restore fiscal control.
- NCCD, introduced in 2001 for disaster relief, remains in place.
What can be done?
The 56th GST Council meeting is expected to consider a 40% GST slab on sin goods. However, raising the rate from 28% to 40% alone may not suffice, especially with the Compensation Cess ending in 2026. A comprehensive approach is needed:
- Revise Central Excise Duty (CED) and National Calamity Contingent Duty (NCCD).
- Create a standalone adjustable GST slab for sin products, making them less affordable over time.
- Introduce a dedicated Health Tax on harmful products like SSB, UPFs and tobacco. An additional Health Tax, alongside CED and NCCD can increase the overall tax burden within the GST framework, generate fiscal space, and fund public health initiatives like anti-tobacco efforts, awareness campaigns, and detox programmes.
There remains considerable scope to increase tobacco taxes, close loopholes, and expand the tax base. There is an urgent need for a comprehensive health tax framework for tobacco, SSBs, and UPFs.