As India marks eight years of the GST, it is an apt moment to reflect on the journey so far, build on its progress and strengthen the framework for the future. GST has been one of the most significant tax reforms in independent India. It has enhanced transparency, improved compliance, and helped strengthen the revenue base. However, a recent commentary has questioned whether the GST framework adequately addresses tobacco taxation. While reducing tobacco consumption is a legitimate public health goal, the push for structural reforms in tobacco taxation such as raising GST on tobacco to the peak rate of 40 per cent, or extending the compensation cess indefinitely must be viewed through a wider lens.

India is the world's second-largest producer and a key global exporter of tobacco. The crop sustains more than 4.5 crore livelihoods, contributes substantially to the national exchequer — generating more than Rs 72,000 crore in tax revenues annually, and an additional Rs 12,000 crore in foreign exchange through exports. While it may be argued that taxation on this product is a recognised tool for tobacco control, excessively high tax burdens on legal cigarettes have historically penalised legal business and incentivised illicit trade.

The policy makers are of the view that if taxes on cigarettes are high, the consumption would come down, and the cause of public health would be served better. But the ill-effects of such excessive taxation are evident. According to WHO Global Health Observatory Data 2024, India is one of the most expensive cigarette markets in the world where its affordability was significantly lower than many countries. This has predictably resulted in a shift in consumption to tax-evaded, sub-standard, and cheaper products. With little choice left, consumers adopt for illicit options as they are cheaper, do not display health hazard warnings, and put less load to their pockets. In all this, they are........

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