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Aditya Jain-09PG303

Chawla Manisha-09PG313

Karthik vishwanath-09PG323

Pooja Prasad-09PG333

Sandeep Babaji-09PG342

Swati Ray-09PG352

SUBMITTED ON: 9th Nov.2009


7 6. 3 2. Tobacco Industry and Taxes. Introduction to the Case. 6 (B)Graphical Analysis. 3 3.CONTENTS: Sr No. 4 4. Topic Page no. 5 5. 8 7. Executive Summary. Conclusion. Analysis of the case (A) PESTLE Analysis. Alternate Solutions. 1. 9 2 . Issue statement.

Not only this.e. Hence putting tax on tobacco would result in sharp decrease in the overall economy. For instance. some of which favoured the act whereas some did not. Many facts and opinions arose after this action. India has had laws against smoking in public places but they have not been enforced strictly.9 million rural people. The growth of cigarette industry is being further stifled by the imposition of ban on smoking at public places such as hotels. imposing strict rules against the usage of tobacco related products. In order to take a step towards it Indian government banned smoking in public places from Oct 2. 2008.EXECUTIVE SUMMARY:- The Cigarette industry has always been on the receiving end when it comes to imposition of taxes and duties in the financial budget of the country affecting its competitiveness in the global market. The point of debate arises that whether this ban on smoking is actually feasible or not. INTRODUCTION:- The given case starts with one of India’s most controversial issue i. It’s been produced on a very large scale from so many years in so many states. In addition to this. attempts to make people aware of the harmful effects of smoking have been increased. it provides employment to approximately 4. 2008 issued by Ministry of Health and Family Welfare. cinemas etc. the birth anniversary of Mahatma Gandhi. 3 . The government of India came up with a law in the form of the Prohibition of Smoking in Public Places Rules. Whereas some stated that tobacco industry is one of India’s high revenue generating industry. restaurants. but imposition of tax on tobacco products is also necessary to cut down the level of smoking. But the objective of achieving a smoke free environment and better health for people by imposing these measures is still debatable.GSR417 (E) dated 30th May. Many health experts and environmentalists have argued that public ban alone will not reduce the prevalence of smoking and its ill-effects. India is the third-largest tobacco producer and consumer in the world after China and the United States. 2008 via Notification No. some were of the opinion that the death rate of Indian population is increasing year by year and hence imposing high tax on tobacco related products will not only put a full stop in the death rate but also reduce the number of consumers who shift to cheap tobacco products to avoid using comparatively costly tobacco products.

the consumer is tend to buy more and more of the tobacco product whereas an increase in the tax 4 . if the tax rates decreases an increase in demand for the product will be seen . The following is the impact of tax on the consumers as well as on the manufacturer:- Effect of tax on consumers:- The tax imposition on the tobacco products usually affects the consumers in the form of sales tax on the product.i. TOBACCO INDUSTRY AND TAX:- Tobacco industry has always been at the top of the list of industries which are of major concern from government point of view. The problem that the government faces is to find a method which would not only reduce the consumption of tobacco and hence the death rate but also have no or very little effect on the revenue generated from this industry. In spite of having some positive features of the tobacco industry. Considering amount of tobacco related products to be constant.e. government has put ban or raise the rates of tax on tobacco related products in order to save people from getting affected by the health hazards which one may get prone to after continuous consumption of the tobacco products.

rate would increase the price of the product and hence the demand will be decreased or customers would not buy the product disregard of the interest. The burden of the tax is still shared by the seller and buyer as shown in Graph B above. This increases the buyer's purchase price while simultaneously lowering the amount received by the seller. This creates an upward shift in the supply curve by the amount of the tax. ISSUE STATEMENT: Ban on Public Smoking or Imposition of Tax on Tobacco. and creates a new equilibrium in the market. With the upward shift of the supply curve the demand moves from a greater quantity to a lesser quantity. 5 . which of these should be adopted keeping in view the needs of country like India. Effect of tax on Manufacturers:- Taxes on the manufacturers are not directly levied on the buyer but on the seller.

are said to aggravate in the smoking population. of which 930.1930 million per annum in the year 1971-1972 to Rs. 6 .beside these other health hazards such as ulceration. where it has to safeguard the interest of the tobacco industry which is one of the major revenue generators for the government as well as to look after the health issues of the Indian people. .ANALYSIS OF THE CASE:- (A) PESTLE Analysis:- Political According to the case. 51.8322 million per annum for the same time periods. Social Currently in India there are approximately more than 120 million smokers.118 million per annum in years 1998-1999. Also another negative aspect of tobacco consumption is the effect it has on non-smokers (ex: the health issues faced by passive smokers due to chain smokers). Economical The tobacco industry has always been one of the major revenue generating sectors for Indian economy. the Indian government is seen to be in a very critical position.840 million per annum to Rs. Whereas for other tobacco products it raised from Rs. It is estimated that by 2010 about a million deaths will occur due to smoking alone. Environmental The waste from tobacco production plays a role in polluting the surroundings. stomatitis etc. This can be proven from the fact that excise revenue generated from cigarettes increased from Rs. Legal The imposition of ban in public places was the legal step taken by the Indian government towards reducing excessive tobacco consumption in order to lower down the increasing number of deaths caused by it. The non-smoking population are also said to be affected by their counterparts.000 will comprise of adult smokers (both male and female included).

given the addictive nature of its consumption. bidis etc. The main reason behind these less tax rates is that these non-cigarette tobacco products are mainly used by the poor and hence increasing bidi taxes will impose financial burden.9 14 9 9 4 .9 71 9 9 7 .9 9 Graph -C.9 31 9 9 3 .Graph showing trend in tobacco consumption in India: 400 350 Cig a r r e te s No Cig a r r e te s % 300 B id is No 250 B id is % 200 S mo kin g No .) amongst consumers in India.7 21 9 8 1 . 7 .9 81 9 9 8 . 150 S mo kin g % 100 O th e r s No . Y axis: Years The above graph shows the consumption trend of tobacco products (like- cigarettes. The increased consumption of bidis and other products can be attributed to the less tax rates as compared to that of cigarettes. X :axis tobacco consumption .9 51 9 9 5 .9 21 9 9 2 .8 21 9 9 1 .B) Graphical Analysis:- (1). 50 O th e r s % 0 1 9 7 1 .9 61 9 9 6 .

Thus. the law of demand is followed in tobacco industry. I.e. as the price decreases the demand increases. bidis etc..(2). They should have thought of curbing the use of tobacco related products slowly over a period of time so. These outcomes are due to the lack of well-thought implementation of tax law by the government. Also the downgrading of consumers from cigarettes to other harmful tobacco products determines the intensity of their addictiveness. that sudden change in the revenue be avoided. as the price of tobacco products increases the demand for that product decreases. Similarly.) was introduced in order to curb the death rate caused by it.Price Elasticity Curve:- Fig-3 As it is clearly seen in the above graph. However an expected general outcry regarding the above social issue showed the addictive nature of smokers towards the product. 8 . government decision to impose tax on tobacco and thereby increasing its price seems to affect the consumption of tobacco products. CONCLUSION:- The imposition of ban on public smoking and tax on tobacco products (like- cigarettes.

Focussing on other revenue generating industries.ALTERNATIVE SOLUTION:- The following steps can be useful to reduce the rate of tobacco consumption:- (A). 9 .Educating poors of the ill-effects of using tobacco products. (B). (C).Encouraging anti-smoking activities. .

- Tobacco consumptio n in thousand 10 .

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