The impact of the GST reform on state-level tobacco use prevalence in India.

Abstract

Background: India's 2017 Goods and Services Tax (GST) reform standardised tax rates nationwide, replacing varying state-level value-added taxes (VAT) with a tiered GST structure that applied the highest 28% rate on tobacco products. This shift altered the overall tax burden on tobacco, with some states experiencing increases or decreases based on their pre-GST VAT rates.

Methods: This study for the first time examines the impact of GST on tobacco use prevalence across Indian states, using state-level VAT rates from 2016 to 2017 and district-level tobacco use data from 2015 to 2016 and 2019 to 2021, covering 636 districts. Two econometric approaches-pooled ordinary least squares and fixed effects panel regression models-are used with a focus on the differential impact in states with high and low pre-GST VAT rates.

Results: The introduction of GST is associated with reductions in smokeless tobacco (SLT) and bidi use prevalence by 0.023 and 0.008 percentage points, respectively, indicating a small but statistically significant effect, with no notable impact on cigarettes. Additionally, the GST reform had a relatively larger effect in reducing SLT and bidi prevalence in high-VAT states compared with low-VAT states.

Conclusion: The study demonstrates that wherever the GST reform led to an increase in the tax burden, it resulted in a small but statistically significant reduction in tobacco use prevalence, emphasising the effectiveness of taxation as a tool to regulate tobacco consumption. It underscores the need for sustained public health-focused fiscal policies, including regular increases in excise duties, to further reduce tobacco use prevalence in India.