Increase in Taxes on Tobacco Products Recommended for Revenue and Public Health

Consumption of tobacco products such as cigarettes, bidis, chewing tobacco, gutkha, and khaini benefits no one, neither individuals nor the country. Therefore, increasing taxes on such products is a sensible approach to reduce their consumption and simultaneously boost government revenue. On one hand, this can help decrease the use of these substances, and on the other, it can contribute to increasing government revenue.

Increasing taxes on health-promoting and daily consumable goods burdens consumers. Instead of raising taxes on such items, the government should even consider providing tax exemptions in certain situations.

However, taxes must be increased on products that adversely affect health, such as tobacco products, alcohol, and sugary drinks. Increasing taxes on these items not only boosts state revenue but also benefits the health of addicts if the increased prices lead to reduced consumption. Therefore, raising taxes on such products offers multifaceted benefits to the state, users, and society in every aspect. In recent years in Nepal, an average annual revenue of 25 to 30 billion rupees has been collected from VAT and excise duty imposed on tobacco products. Similarly, revenue from taxes on alcohol amounts to up to 50 billion rupees annually, and from sugary drinks, it exceeds 5 billion rupees.

Global studies have consistently shown that increasing taxes on these harmful substances makes them more expensive and reduces their consumption. In Nepal, the Nepal Development Research Institute (NDRI), a reputable institution for research, has been conducting extensive studies, research, and discussions on this matter.

If the current 41 percent tax on tobacco products in Nepal is increased by 60 percent, studies show an additional revenue increase of 12 billion rupees.

According to NDRI, the current tax rate on tobacco products in Nepal is limited to 41 percent, which is the lowest in South Asia. In contrast, Bangladesh, a South Asian country, imposes a 73 percent tax on tobacco products, setting an example by adhering to the World Health Organization (WHO) benchmark of around 75 percent.

Similarly, Sri Lanka imposes a 68 percent tax, Maldives 65 percent, and India 58 percent on tobacco products. Developed countries like the UK and Finland impose taxes up to 90 percent of the retail price on tobacco products. Therefore, for a less developed country like Nepal, where mortality from non-communicable diseases is increasing and treatment costs are escalating, it appears wise in every respect to maximize taxes on such products.

If the current 41 percent tax on tobacco products in Nepal is increased by 60 percent, studies show an additional revenue increase of 12 billion rupees. NDRI's study indicates that a tax increase at this rate would reduce the consumption of tobacco products by 5 to 11 percent. NDRI recommends increasing the tax by at least 60 percent of the current rate, as it would increase government revenue and positively impact public health by reducing the consumption of these harmful substances.

According to NDRI, as many as 39,200 people die annually in Nepal due to the consumption of tobacco products. This means 107 Nepalis die every day, and 4 Nepalis die every hour, solely due to tobacco products.

Studies show that smoking causes an estimated loss of around 48 billion rupees annually in Nepal.

Globally, over 1.3 billion people are currently addicted to tobacco products, with over 80 percent residing in low- and middle-income countries. In Nepal itself, 6.7 million people are consumers of tobacco products. In recent years, tobacco products have become a major cause of death and illness in Nepal. The mortality rate due to tobacco product consumption in Nepal has increased from 10 percent in 1990 to 24 percent by 2023, highlighting the urgent need for concern and action regarding public health.

Studies indicate that the treatment of individuals suffering from diseases like cancer, heart disease, and lung disease caused by tobacco product consumption incurs significant expenses. Furthermore, there is no guarantee of recovery even if cancer is diagnosed.

Studies show that smoking causes an estimated loss of around 48 billion rupees annually in Nepal. In addition to the direct annual economic loss of billions due to tobacco product consumption, it indirectly causes trillions of rupees in damage to the country. Studies also show that addiction to tobacco products typically begins between the ages of 15-19, and it is extremely difficult to help those addicted to quit. Therefore, once an individual becomes a consumer of tobacco products, they tend to become a regular customer for life, which can be easily estimated to have a continuous and profound impact on the economy.

Moreover, tobacco products severely harm an individual's health, reducing their working capacity and productivity, thereby indirectly damaging the country's economy. For these reasons, it is extremely important for the government to increase taxes on tobacco products. Looking at global examples, increasing taxes is a primary method to reduce the consumption of such items.

The budget-making process is currently underway, and the esteemed Finance Minister, Swarnim Wagle, has sought suggestions from stakeholders. At this juncture, it is imperative for the Finance Minister and the Ministry of Finance to revise the tax rates on tobacco products, considering the damage these products inflict on the country and public health. Increasing taxes on tobacco products will make these harmful substances inaccessible to the poor and needy, while also strengthening the state's revenue.

In previous years, taxes on tobacco products were increased only marginally. Consequently, as the prices remained affordable within people's purchasing power, consumption did not decrease.

Currently, with approximately 30 percent of the total population in Nepal consuming tobacco products, a tax increase is a natural step to reduce this figure. It would be even better if the tax on tobacco products in Nepal could be raised to over 70 percent, similar to Bangladesh.

Developed countries are making concerted efforts, based on meticulous research, to reduce tobacco product consumption. It is essential for a developing country like Nepal to also consider such measures.

In previous years, taxes on tobacco products were increased only marginally. Consequently, as the prices remained affordable within people's purchasing power, consumption did not decrease. However, if taxes are significantly increased, there is no doubt that the number of tobacco product users will decline, as international practices also indicate.

The state must prioritize making its citizens healthy. Whether it is budget formulation or ministry operations, it is ultimately for the benefit of the general public. Therefore, addressing public health is the state's duty. Only when the people are healthy will the nation be healthy, and only then will the country progress in various sectors, including the economy. Thus, the government must move forward not only by reducing the consumption of tobacco products but also of toxic products and alcohol. Tax rates in the budget should be adjusted with the common citizen at the center, not to benefit a select few, traders, or commission agents.

Some might argue that increasing taxes on cigarettes and tobacco in Nepal could lead to increased illegal trade from India. However, this argument lacks substance because India already imposes higher taxes on tobacco products than Nepal and is continuing to increase them. Therefore, it is wise for Nepal to confidently increase taxes on cigarettes and tobacco products. The budget's policy and programs should incorporate special initiatives to discourage the consumption and trade of tobacco products. This will have a positive long-term impact on Nepal's economy, both directly and indirectly, and help reduce the damage that has been occurring to public health and the country's economy for many years.