The union health ministry backed by World Health Organisation (WHO) and other public health groups have proposed an up to 40 per cent hike in taxes on all tobacco products to bring their prices at least on par with those of essential commodities.
To highlight the discrepancy between the existing tobacco prices and rising income levels, they also cite the findings of a study commissioned by the health ministry and WHO, which show prices of tobacco products in India have not increased substantially over time, thus making these products even cheaper than essential food items.
If the finance ministry accepts the health ministry' arguments, tobacco products may attract a fresh bout of tax hike in the upcoming union budget 2016-17.
"The relative wholesale price index (WPI) of all tobacco products (smoking and smokeless) show an increasing trend between 2005-06 to 2012-13, but this has been consistently lower than essential commodities like food items," the report 'Tobacco Taxes in India: An Empirical Analysis', based on the study, said.
Tobacco companies, however, say there has already been substantial hikes in taxes on cigarettes between 2006 and 2013 and these have made tobacco products costlier, substantially affecting their consumption.
However, health experts argue that any fall in tobacco consumption cannot be on account of higher taxes, rather it may be due to active anti-tobacco campaigns.
Though public health experts agree that taxation on tobacco products have improved since 2013, they say there is still a huge scope for increasing taxes, especially on bidis, which have largely remained untouched so far.
As per government estimates, the total economic cost attributable to tobacco use from all diseases in the year 2011 amounted to Rs1,04,500 crore ($22.4 billion) in India, equivalent to 1.04 per cent of GDP.
The health ministry and WHO along with public health groups have also made specific recommendations, including a tax hike indexed to inflation. The ministry has also proposed an increase in excise duty on all tobacco products as well as broadening the tax regime to include unorganized sector.
The recommendations have been forwarded to the finance ministry, official sources said.