India: The Tax Treatment of Bidis Emil M. Sunley.
-
Upload
ethen-eastes -
Category
Documents
-
view
220 -
download
1
Transcript of India: The Tax Treatment of Bidis Emil M. Sunley.
![Page 1: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/1.jpg)
India:
The Tax Treatment of Bidis
Emil M. Sunley
![Page 2: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/2.jpg)
Bidis
• Indian market for smoking tobacco dominated by bidis– Bidis account for 77%
of the market for smoked tobacco
– About 10 bidis smoked for every cigarette
![Page 3: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/3.jpg)
What are Bidis?
• Bidis are shredded tobacco– Tobacco is sun-dried,
hand-rolled in leaf (tendu) and secured with string
• Traditionally non-filtered and non-flavored– Some bidis are now made
with filters and flavorings
![Page 4: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/4.jpg)
Bidi Production
• 3 constituencies involved– Tendu leaf plucker– Bidi tobacco farmer– Bidi manufacturer
• Manufacturing steps – Procurement of raw material– Bidi rolling– Sorting and roasting– Packing
![Page 5: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/5.jpg)
Bidi Manufacturing Process
Tobacco Tendu Leaves
Cultivated and sun- dried by the farmer
Tobacco Processor /
Blender
Government / Department of
Forestry
Tender Process
Bidi Manufacturer’s Representative / Agent
Raw Materials
Plucked and sun-dried by indigenous tribal people
Bidi Manufacturer
![Page 6: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/6.jpg)
Bidi Manufacturing ProcessBidi Manufacturer
Sorting and
roasting
Packaging
Rolling Contractor
Rolled BidisTobacco, tendu
leaves and thread
Rollers Rollers Rollers
Rolling Process
Tobacco, tendu leaves and thread
Rolled Bidis
![Page 7: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/7.jpg)
Bidi Manufacturing Process
Packaging
Wholesaler Wholesaler Wholesaler
Retail
Retail
Retail
Retail Retail
Retail Retail
Retail Retail
![Page 8: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/8.jpg)
Per Stick, Bidis Are as Dangerous as Cigarettes
• Although bidis contain only about 1/5 the amount of tobacco in regular cigarettes, they contain 2-3x more tar and nicotine
• Bidi smokers consume on average twice as many sticks per day as cigarette smokers
• Mortality rate among bidi smokers 20% higher than among cigarette smokers
![Page 9: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/9.jpg)
The Case for Increasing Excise Taxes on Bidis
• Bidis are under-taxed compared to cigarettes– Currently taxed at <10% to <1% of the rates
levied on cigarettes
• In the past, tax rate on bidis kept low to “protect the poor”– However, poor bidi smokers would have
better health and financial stability if they reduce consumption
– There are better ways to help the poor than providing cheap tobacco products
![Page 10: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/10.jpg)
Handmade Bidis Account for Over 98% of the Bidi Market…
But are taxed at only half the rate ofmachine-made bidis
98%
2%
Handmade bidisMachine-made bidis
14
26
0
5
10
15
20
25
30
Handmade Machine-made
Ex
cis
e D
uty
(R
s p
er
1,0
00
sti
ck
s)
Percent of Bidi Market
![Page 11: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/11.jpg)
Excise Duty on Bidis is Only 8%of Excise Duty on Micro (</=60mm)
Non-Filter Cigarettes And both duties have barely kept pace with inflation
0
40
80
120
160
200
96
/97
97
/98
98
/99
99
/00
00
/01
01
/02
02
/03
03
/04
04
/05
05
/06
06
/07
07
/08
Exc
ise D
uty
(Rs,
sta
nd
ard
ize
d t
o 2
00
7/0
8,
pe
r 1
,000
sti
ck
s)
Bidis* Cigarettes - Non-filter (</=60 mm)
* Handmade bidis only, which account for 98% of the bidi market.
![Page 12: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/12.jpg)
Bidi Excise Revenues Remain Flat While Cigarette Excise Revenues
Increase
0
20000
40000
60000
8000093
/94
94/9
5
95/9
6
96/9
7
97/9
8
98/9
9
99/0
0
00/0
1
01/0
2
02/0
3
03/0
4
04/0
5
05/0
6
06/0
7
Exc
ise
Tax
Rev
enu
e(R
s, m
illio
ns)
BidisCigarettes
![Page 13: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/13.jpg)
>10 Bidis are Smoked for Every Cigarette…
But Bidis Account for <6% of Combined Excise Tax Revenues (2006/07)
91.8%
8.2%
Bidis consumedCigarettes consumed
5.7%
94.3%
Bidi excise taxesCigarette excise taxes
![Page 14: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/14.jpg)
Excise Tax Burden for Bidis is Much Lower than for All Types of
Manufactured Cigarettes
2.181.58
0.7
1.323
0.819
0.546
0.150.33
0.0140.168
0
1
2
3
4
>70-75 mm </=70 mm >60-70 mm </=60 mm Bidis
Tota
l co
st in
Rs
per
sti
ck
(bas
e p
rice
+ t
ax)
Excise tax dutyBase price
Note: Prices are for most common brand of cigarettes, and for handmade bidis.Cigarettes
![Page 15: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/15.jpg)
Excise Tax on Bidis (Rs 14 per 1,000) is <1% of Tax on Some Cigarettes
1759
1323
819
546
16814
0
500
1000
1500
2000
>75-85mm
>70-75mm
</=70mm >60mm </=60mm Bidis*
Excis
e T
ax
(Rs p
er
1,0
00 s
ticks,
2007/0
8)
Cigarettes
* Handmade bidis only, which account for 98% of the bidi market.
![Page 16: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/16.jpg)
Numbers of Bidis on which Taxes Are Paid Are Decreasing
0
100
200
300
400
500
60096
/97
97/9
8
98/9
9
99/0
0
00/0
1
01/0
2
02/0
3
03/0
4
04/0
5
05/0
6
06/0
7
Tax-
pai
d b
idis
(bill
ion
s o
f st
icks
)
![Page 17: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/17.jpg)
Between 52 and 70% of All Bidis Consumed Are Not Tax-Paid
0
200
400
600
800
1000
1200
1400
Low estimate High estimate
Bid
is c
on
sum
ed(b
illio
ns
of
stic
ks)
Non-tax-paid bidisTax-paid bidis
![Page 18: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/18.jpg)
Micro Non-Filter Cigarette Consumption Increased when Tax Rate Cut, then
Decreased When Tax Rate Increased Likely Due to Shift to Bidis Taxed at Lower Rates
0
5000
10000
15000
20000
2500093
/94
94/9
5
95/9
6
96/9
7
97/9
8
98/9
9
99/0
0
00/0
1
01/0
2
02/0
3
03/0
4
04/0
5
05/0
6
Cig
aret
te C
on
sum
pti
on
(No
n-f
ilter
</=
60m
m,
mill
ion
s o
f st
icks
)
0
20
40
60
80
100
120
140
160
Exc
ise
Tax
Rat
e(N
on
-filt
er <
/=60
mm
,R
s p
er 1
,000
cig
., cu
rren
t R
s)Micro non-filter cig. consumptionExcise tax rate
![Page 19: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/19.jpg)
Recommendations to Rationalize Tax System
• Eliminate distinction between handmade and machine-made bidis– Higher excise on machine-made bidis favors
handmade process (98% of bidis are handmade)– Negligible revenue effect in short-term – Over time, would lead to greater use of machines
to produce bidis– Impact:
Bidi industry would employ fewer people; those employed would be paid more
Bidi manufacturing would be less fragmented, making it easier to collect excise duties
![Page 20: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/20.jpg)
Recommendations to Rationalize Tax System (cont.)
• Eliminate small producer exemption– Or alternatively limit it to truly small companies
and allow inspections
• Reduce tax evasion– Prohibit sale of unbranded bidis– Require reporting to Excise Department of all
sales to and by manufacturers or their agents
• Increase excise rate on bidis– From current Rs 14 per 1,000 sticks to at least
Rs 168 per 1,000 sticks– Same rate as micro non-filter cigarettes
![Page 21: India: The Tax Treatment of Bidis Emil M. Sunley.](https://reader038.fdocuments.us/reader038/viewer/2022103015/551b5dab550346a6148b456e/html5/thumbnails/21.jpg)
Reform of the National Goods and Services Tax (GST)• Treat excisable goods as other goods,
subject to VAT (not exempting bidis)
• Set a single specific excise rate for all cigarettes– Initially set higher than the excise rate for
regular filter cigarettes
• Over several years, increase excise rate on bidis to single rate for all cigarettes