Question 09.Cigarettes constitute a mere 20% of tobacco consumption in India, and fewer than 15% of the 200 million tobacco users consume cigarettes. Yet these 15% contribute nearly 90% of the tax revenues to the Exchequer from the tobacco sector. The punitive cigarette taxation regime has kept the tax base narrow and reducing taxes will expand this base. Which one of the following best bolsters the conclusion that reducing duties will expand the tax base?
Question 09.Cigarettes constitute a mere 20% of tobacco consumption in India, and fewer than 15% of the 200 million tobacco users consume cigarettes. Yet these 15% contribute nearly 90% of the tax revenues to the Exchequer from the tobacco sector. The punitive cigarette taxation regime has kept the tax base narrow and reducing taxes will expand this base. Which one of the following best bolsters the conclusion that reducing duties will expand the tax base?
The correct option is B (b) There is a likelihood that tobacco consumers will shift to cigarette smoking, if cigarette prices were to reduce.
Answer 09. (b) Statement (2) best reinforces the conclusion that reducing duties would expand the tax base. This is because the number of cigarette smokers will increase on account of the influx of tobacco chewers, who would discard the chewing of tobacco in favour of the puff of a cigarette, in the event of reduction in prices of cigarettes, as a fallout of the reduction in duties. Statement (1) may be sensible in itself but it need not result in the increase in the number of cigarette smokers. Statement (3) is the intermediate stage of the state of affairs and nothing can be foretold about the outcome. Statement (4) may not end up in the increase in the number of cigarette smokers merely because of the increase in duties of non-cigarette tobacco, since nothing is known about the price base of cigarettes.
(b) There is a likelihood that tobacco consumers will shift to cigarette smoking, if cigarette prices were to reduce.
Answer 09. (b) Statement (2) best reinforces the conclusion that reducing duties would expand the tax base. This is because the number of cigarette smokers will increase on account of the influx of tobacco chewers, who would discard the chewing of tobacco in favour of the puff of a cigarette, in the event of reduction in prices of cigarettes, as a fallout of the reduction in duties. Statement (1) may be sensible in itself but it need not result in the increase in the number of cigarette smokers. Statement (3) is the intermediate stage of the state of affairs and nothing can be foretold about the outcome. Statement (4) may not end up in the increase in the number of cigarette smokers merely because of the increase in duties of non-cigarette tobacco, since nothing is known about the price base of cigarettes.
