HomeHealthGST and the Beedi Industry: Smoking Without Fire

GST and the Beedi Industry: Smoking Without Fire

The Indian Government has introduced the Goods and Services Tax (GST) on July 1, 2017. Hailed as the biggest tax reform of the independent India, GST was introduced on the midnight of July 1 in a special session convened at the central hall of parliament. GST is an indirect tax that subsumed all other indirect taxes prevailed earlier. The idea behind mooting GST is to have one single tax rate for a product or services across the nation. Currently, the tax rates for various goods and services are fixed at 0%, 5%, 12%, 18% and 28%. Luxury goods and Sin goods are taxed at highest rate of 28%.

One of the early victims under the GST regime is the Tobacco industry in general and the Beedi industry in particular. Tobacco products which are classified as “sin goods” by the Government suffer the maximum tax rate of GST at 28% in addition to the ad valorem cess of 5% over the tax rate. Further, the GST council held on July 17 further increased the tax rates per 1000 cigarettes in addition to the GST and advalorem of 5%. This move is expected to earn additional revenue of Rs. 5000 crores to Government annually. In the union budget, central Government has already increased the tax rate of cigarettes by 6%. Hence, the total tax on cigarettes this fiscal year is about 16-17%. Despite the higher tax rates, industry leaders like ITC continue to post growth in revenue since the tax burden is transferred to the consumers in the form of hike in cigarette price. Many argue that the increased tax rate is not as per the WHO recommendation which proposes a tax rate of 75% on tobacco products.

Tobacco Industry

India is the World’s 2nd largest producer of tobacco. India accounts for 10% of the World tobacco area and 9% of the production. It is an important commercial crop grown in India generating enormous socio-economic benefits in terms of agricultural employment, farm incomes, revenue generation and foreign exchange earnings. Tobacco is estimated to provide livelihood for 45 million people in the country. Contrary to popular belief, cigarettes constitute only 11% of the total tobacco production. The remaining 89% is consumed in the form of Beedis, chewing tobacco and illegal cigarettes. The small share of cigarettes in the overall tobacco consumption is a result of high and discriminatory tax policy on a per kg basis of tobacco consumption.

Beedi: Poor Man’s Cigarette; Poor Woman’s Livelihood.

Beedis are the poor people’s alternative to cigarettes. The Beedi manufacturing is highly labour intensive industry which majorly employs woman from the rural areas. Kolkata, Madhya Pradesh and Jharkhand employ more number of Beedi workers in India. An estimated 6 million workers are engaged in Beedi rolling out of which nearly two-thirds are home based woman and children. Beedis are made using tobacco and Tendu leaves. The Tendu leaves are cut in rectangular shape and rolled into small pieces with tobacco leaves stuffed inside. Tendu leaves collection is the financial lifeline of people in tribal areas. The tribals collect Tendu leaves as part of their rights defined under Scheduled Tribes and other Traditional Forest dwellers(Recognition of Forest Rights) Act 2006. Post GST implementation, Tendu leaves are taxed at 18% against the earlier rate of 5.5%. As a result, the traders who get the tenders from the state corporations to collect tendu leaves, will pay less for the tribal collecting Tendu leaves resulting in a decline in the profits to the Gram Sabha. The taxing of Minor Forest Produce (MFP) is against the fundamental essence of equity under which Forest Rights Act (FRA) of 2006 that exempted incomes obtained from sale of non-timber forest products from taxation. The Beedi industry already suffered severe financial crunch after demonetization. Adding to its woes, raw Tobacco under GST is taxed at 5%, Tendu leaves are taxed at 18% and finished beedis are taxed at 28% making this household industry more vulnerable to job cuts and towards eventual extinction.

Nearly a million people die in India every year due to consumption of tobacco in some form or the other.  There is an increasing demand from anti-tobacco activists in India and across the world to tax the tobacco related products at exorbitantly high tax rate to deter the tobacco consumers. The anti-tobacco activists has forced the Government to initiate awareness programs on the tobacco usage and enforced the health warnings in cigarettes and beedi packets to educate the public. Tobacco consumption poses a major health risk among the youngsters. However, the anti-tobacco initiatives are primarily countered with livelihood argument of Beedi industry.

Time To Move On?

A research paper on Beedi industry states that beedi industry accounts for 11% of the unorganized manufacturing employment in India. The share of beedi industry to national income may be quite dismal but at the regional level, beedi manufacturing contributes to a significant share of employment and economic activity in some of the states like Telegana, Jharkhand etc. With the increase in the tax rates of Beedis and tendu leaves on the one side and raising awareness on the ill-effects of tobacco consumption on the other, there is an increasing need to have a comprehensive study on this industry to explore alternate source of employment for the workforce who are primarily dependent on this industry similar to the transition of handloom industry. The increase in cess can be used by the Government to assist the beedi workers in making transition to other productive livelihoods. The Government should focus on providing better primary and secondary education, skill development and vocational training to the rural households to reduce the attraction on Beedi industry and to equip them for better career prospects.

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