Affordability of Cigarettes and other Tobacco Products in the post GST regime in India

Ashok Thomas (ashok.thomas@iimk.ac.in), Sthanu R Nair (srn@iimk.ac.in) and Devaprasad M (devaprasad@iimk.ac.in)
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Ashok Thomas: Indian Institute of Management, Kozhikode
Sthanu R Nair: Indian Institute of Management, Kozhikode
Devaprasad M: Indian Institute of Management, Kozhikode

No 328, Working papers from Indian Institute of Management Kozhikode

Abstract: The introduction of Goods and Services Tax (GST) in India starting from July 1, 2017 was a landmark move in the history of Indian tax reforms. The pre-GST regime characterised by VAT rate varying between products and states bequeathed a path for GST, where the tobacco price variation across states is expected to vanish due to uniform tax rates influencing consumption and revenue from tobacco products. An analysis of the tax burden during pre-GST period and after implementation of GST has helped us in understanding that, the transition to the GST has not made any major increase in the tax burden on the cigarettes. Even the GST compensation cess have not made any drastic increase in the tax burden on cigarettes. On the contrary, the post-GST tax structure on cigarettes is claimed to be burdensome by major cigarette producing companies in India. In the light of these conflicting views, it is imperative to assess impact of GST on the affordability of tobacco products.We employ the affordability index developed by Bletcher and van Walbeck (2004) using Relative Income Price (RIP) on tobacco and non-tobacco products for the time period between 2014-15 and 2017-2018. The study finds that in the post-GST period, for majority of the study states cigarettes have become less affordable. This isdue to a fall in income counteracted against price increases. For majority of the study states, beedi has become less affordable during the post-GST period. This is due to price increases counteracted against income decreases. And finally for non-tobacco products, in post-GST period, the affordability of rice, wheat and egg has increased in majority of the states. In case of rice and egg, this effect is due to increases in income counteracted against price increases. On the other hand, in case of wheat the result was due to increases in income coupled with fall in wheat prices

Keywords: Tobacco; Taxation; Government Policy and Regulation (search for similar items in EconPapers)
Pages: 03 pages
Date: 2019-03
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