A Diagnostic of the Health Taxes Landscape in India

John, Rijo M.; Araujo, Edson C.

A Diagnostic of the Health Taxes Landscape in India

Autores

John, Rijo M.

Araujo, Edson C.

Editor

Washington, DC: World Bank

Descripción

The consumption of tobacco, alcohol, and sugar-sweetened beverages (SSBs) in India leads to significant public health and economic challenges, with 1.6 million deaths and 49.3 million disability-adjusted life years lost annually. These products are major risk factors for noncommunicable diseases, responsible for 64.9 percent of all deaths in India as of 2019. India is the world's second-largest tobacco consumer, with declining but still a substantial 267 million tobacco users. Alcohol consumption has seen per capita increases among drinkers, and India leads globally in sugar consumption. The economic burden from diseases related to these products is considerable, with tobacco-related costs at US$36.2 billion annually and alcohol-related costs at US$31.4 billion. Health taxes have been effective globally in reducing consumption and generating revenue while addressing market failures from negative externalities and internalities. India's current indirect tax system, involving a national-level Goods and Services Tax (GST) on tobacco and SSBs, as well as statelevel excise duties and value added tax (VAT) on alcohol, poses challenges due to its complexity and inconsistencies. Tobacco products are taxed under GST at 28 percent with additional cesses, but rates remain well below the World Health Organization's recommendations, and its structure is highly complex. The GST applied on SSBs is not commensurate with the product’s sugar content. Excise duties and VAT applied on alcoholic beverages vary significantly across states. Reforming health taxes requires addressing these inconsistencies, improving tax compliance, and introducing new tax structures based on the relative harm of each product. Empirical evidence on the effectiveness of health taxes in India is limited, particularly for alcohol and SSBs. Policy priorities include increasing specific excise taxes, replacing compensation cess with health tax, simplifying the tax structure, regulating marketing practices, and detailed state-level analysis of alcohol taxation to find a preferred taxation regime on alcohol.