How Low Taxation Rates of Cigarette and Tobacco Products Affect the Country ?
Nepal falls among the countries in Asia which levy the least amount of taxes on cigarette and tobacco products. With it imposing 41% tax on such products, while neighboring countries like India (53%), Pakistan (61%) and Bangladesh (73%) impose significantly higher tax rates on said products. According to the WHO, the recommended rate of taxation of cigarette and Tobacco products is 75%.
This has had an adverse effect on both the nation's economy and the health of its citizens. Imposing high taxes are an effective way of indirectly discouraging consumption of harmful products such as cigarettes and tobacco, while also creating a surplus of revenue for the government.
Cardiovascular diseases, cancer, chronic respiratory disease, and diabetes is a growing problem in the nation and low taxes on these products are a big contributing factor in the growth of these diseases. It is estimated that at least four people succumb everyday in Nepal due to ailments related to consumption of tobacco products.
Usage of tobacco and cigarettes also has an economic cost with recent studies showing a decrease in productivity in the economy due to usage of these products.Studies show a 1.8% loss in the GDP of the nation every year due to usage of such products. Stringent tobacco control policies, such as higher taxation could potentially lead to NPR 121 billion in economic benefits over the next 15 years.
The rise in taxation of these products would lead to an increase in it's prices thus making people quit the habit of smoking. Increase in black market trade of such products due to tax hikes is a major worry. Yet, a recent study found only 0.33% of cigarettes present in Nepal come from illicit sources.
Not only will this be beneficial for the health of the citizens but also for the economy. With increase in taxation on cigarette and tobacco products directly causing increase in tax revenue of said countries. A study conducted by the WHO in 2000, shows that an annual 5% increase in taxation of tobacco and cigarette products would result in an additional tax revenue collection of NPR 27,265 million (440 million USD) and a decrease of 60% in terms of consumption of tobacco and cigarette in a period of 10 years.
Thus an increase in taxation of cigarettes and tobacco will not only improve the health of the citizens but also would benefit the country economically.
Authored by Bishesh Shrestha
Bishesh Shrestha is an intern at our company. Shrestha is a recent International Baccalaureate (IB) graduate from Lalitpur-based Ullens School. He possesses a keen interest in the realms of finance and economics.
