World Bank Recommends Health Cess On Tobacco, Sugary Drinks In India

The world over, taxes are used to reduce the consumption of harmful products. Yet, in India, tax rates on such products, especially on tobacco and sugar-sweetened beverages, have remained largely unchanged since 2017, despite their increasing affordability.

Cigarettes are taxed at approximately 53 per cent of their retail price, while smokeless tobacco is taxed at 65 per cent, and bidis at 22 per cent. This falls significantly short of the 75 per cent tax rate recommended by the World Health Organization (WHO). In Brazil, on the other hand, tax rates generally hover around 60–70 per cent, while in Indonesia they range between 50–60 per cent, and the 28 countries of the European Union they average approximately 67.5 per cent. On sugar sweetened beverages, India’s tax is only about 28.6 per cent.

The World Bank finds that India can address the issue by replacing the GST Compensation Cess with a Health Cess that can reduce the consumption of these unhealthy products, while maintaining public revenue. On March 31, 2026, the Goods and Services Tax (GST) Compensation Cess, which is currently applied to products like tobacco and SSBs, is due to expire.

The Compensation Cess was introduced in July 2017 to compensate states for the potential loss of revenue during the transition to the nation-wide GST system. Its expiration without a suitable replacement would make these products more affordable, with adverse impacts on people’s health. The new health cess can also be extended to bidis, World Bank said.