GST reform and unfinished business in tobacco control

Context

• As India marks eight years since the introduction of the Goods and Services Tax (GST) on July 1, 2017, it is worth reflecting on this landmark reform

• India commemorates eight years of GST implementation on July 1, 2025, marking a transformative milestone in its indirect taxation system. Launched in 2017, GST aimed to simplify the tax structure, improve compliance, and unify the Indian market.

About GST

• Replaced multiple indirect taxes: VAT, excise duty, service tax, octroi, etc.

• Instituted under the "One Nation, One Tax" principle.

• Enabled the creation of a common national market, enhancing economic federalism.

• Harmonised tax rates across states, improving ease of doing business.

• Introduced the Input Tax Credit (ITC) mechanism, eliminating cascading taxes.

• Digitisation of compliance via GSTN, e-way bills, and e-invoicing reduced human interface and corruption.

• Abolition of inter-state checkposts reduced logistics costs and cut transport time by ~20%.

Revenue Performance and Fiscal Impact

• GST is now a major source of tax revenue for both Centre and States.

• ₹22.08 lakh crore gross GST collection in 2024–25 (a 9.4% YoY increase).

• Monthly average collection in FY25 is above ₹1.8 lakh crore, reflecting broad-based economic activity.

• Better tax buoyancy supports fiscal consolidation.

• Governance and Institutional Mechanism

• Administered by a GST Council, a federal body comprising the Union and State Finance Ministers.

• Operates on the principle of cooperative federalism, though recent decisions have seen some Centre -State frictions (e.g., compensation issues during COVID-19).

Challenges in Public Health: Tobacco Taxation

• Despite being a sin good, tobacco taxation under GST is suboptimal.

• Tobacco causes 3,500 deaths/day, with an economic burden of ₹2.34 lakh crore annually (1.4% of GDP in 2017).

• In contrast, average GST revenue from tobacco is ₹55,100 crore/year, indicating under-taxation.

Global Best Practices and WHO Benchmarks

• WHO recommends a minimum 75% tax burden on tobacco (of retail price).

• India's current tax burden: 22% for bidis, 54% for cigarettes, 65% for smokeless tobacco.

• No significant tax hikes on tobacco since GST launch—a missed opportunity for public health gains.