A Rational Taxation System of Bidis and Cigarettes to Reduce Smoking Deaths in India

Tobacco smoking of bidis and cigarettes causes about one million deaths a year in India. India’s relatively high consumption is due in part to a historically low or no tax on bidis and an inefficient, complex system of taxing cigarettes. In the context of planned tax reforms in India, we provide specific recommendations to raise tobacco taxes and to adopt a simpler and more efficient tax administration that would curb smoking. We estimate that raising the tax as a percentage of retail price from 7% to 33% for bidis and from 43% to 58% for cigarettes would conservatively lead to about 14 million smokers quitting and 27 million children never starting, thereby saving some 69 million years of healthy life over the next 40 years. The increase would also raise about Rs 73 billion or an additional 1.2% of current government revenue, while incurring no or minimal economic harm. Modest action on tobacco taxes in India might well save millions of lives.