.
Designing Tobacco Tax Policy for Health
Comparison with Regional Tobacco Tax Systems
Jeremias N. Paul Jr.
Coordinator – Tobacco Control Economics
Prevention of Noncommunicable Diseases (PND)
World Health Organization
The views expressed in this presentation are the views of the author and do not
necessarily reflect the views or policies of the Asian Development Bank Institute
(ADBI), the Asian Development Bank (ADB), its Board of Directors, or the
governments they represent. ADBI does not guarantee the accuracy of the data
included in this paper and accepts no responsibility for any consequences of their
use. Terminology used may not necessarily be consistent with ADB official terms.
www.who.int
PRESENTATION OUTLINE

I Background

Best Practices in Tobacco

II Taxation

III Regional Comparisons

IV Concluding Remarks

2
Tobacco Taxation: A Critical Strategy

• Significantly increasing the excise tax

and price of tobacco products is the
single most consistently effective
tool for reducing tobacco use.
PRICE
• Young people and the poor are INCREASE
generally more responsive to changes
in prices.

• In HICs, estimates of price elasticity of

demand range from –0.2 to –0.6,
clustering around -0.4. In LMICs, Decreased Decreased
elasticity estimates range from –0.2 to Consumption in Consumption in
LMICs HICs
–0.8, clustering around –0.5.

Source: NCI-WHO Monograph on the Economics of Tobacco and Tobacco Control

3
High Cigarette Prices Prevent the
Youth from Smoking
Inflation-Adjusted Cigarette Prices and Prevalence of Youth Smoking
in the United States, 1991–2014

Source: NCI-WHO Monograph on the Economics of Tobacco and Tobacco Control

4
Addis Ababa Action Agenda:
Tobacco Taxation is Win-Win

“price and tax measures on tobacco can be an

effective and important means to reduce tobacco
consumption and health care costs, and represent a
revenue stream for financing development in
many countries”

5
16 WHO Best Buy Interventions
for NCD Prevention and Control
TOBACCO ALCOHOL
1. Increase tobacco taxes and prices 6. Increase taxes
2. Smoke-free policies 7. Restrictions on
3. Graphic health warnings / plain packaging advertising
4. Advertising, promotion & sponsorship bans 8. Regulations on
5. Mass media campaigns availability and
physical access
DIET & PHYSICAL INACTIVITY
9. Reduce salt content through
CANCER / CVD /
reformulation of food products
10. Providing supportive environments
DIABETES
11. Behavioural change communication 14. Drug therapy and
and mass media campaigns counselling for high-risk
12. Front-of-pack labelling persons
13. Awareness campaign for physical 15. HPV vaccination for girls
activity 16. Cervical cancer screening

17/07/2018 6
Tobacco Taxation: Essential for an
enhanced WHO FCTC Implementation
Increasing tobacco taxes will help meet goals stated in the
2030 Agenda for Sustainable Development (SDGs)

SDG 3.4
By 2030, reduce by one-third
premature mortality from non-
communicable diseases

SDG 3.a
Strengthen the implementation
of the WHO Framework
Convention on Tobacco Control

7
Tobacco Taxation: Highly
Effective Yet Least Implemented

Source: NCI-WHO Monograph on the Economics of Tobacco and Tobacco Control

8
SCARE Tactics of the
Tobacco Industry
Tobacco Industry SCARE
S – Smuggling & Illicit
tactics and misinformation
are the key hindrance to
Trade
increasing tobacco taxes C – Court & Legal
worldwide Challenges
This is especially the case in A – Anti-poor Rhetoric
low and middle income
countries (LMICs), that often R – Revenue Reduction
lack technical capacity
E – Employment Impact
and/or political commitment
 .

Best Practices in
Tobacco Taxation

10
Tax Structure Matters
How Is Tobacco Taxed? Specific Excise Taxes
• Generates a relatively
• Taxes on tobacco crops stable revenue stream
• Customs duties on tobacco imports/exports • Discourages shifting to
lower-priced products
• Sales taxes (local and national) • Easier to enforce
• Value-added taxes (VAT) • Real value falls due to
inflation
• Excise taxes
Ad Valorem Taxes
oSpecific taxes – tax based on quantity
or weight (e.g. per cigarette pack) • Rises with inflation
• Revenues may be more
oAd valorem taxes – tax based on value unstable since taxes
(e.g. a percentage of manufacturer’s depend on industry pricing
price) • Government effectively
loses money when TI
reduces prices
Tax Structure Matters
• Governments apply a
5.91
variety of tobacco taxes,
5.46 using different tax
Price and taxation per pack ($PPP)

Highest
Prices
4.57
&4.25Tax structures.
4.08 3.98
Yields • Relying on import duties
to generate revenue is not
an effective tax policy and
2.70
2.17 2.26 2.09 2.02 does not substantially
-
affect public health.
Specific
excise
Mixed
system
Mixed
system (all)
Ad valorem
excise
Mixed
system
No excise
• Simpler is better -
Relying more Relying more
on specific on ad reliance on high, uniform,
excise valorem
excise and specific excise taxes
will have the greatest
public health impact.
Source: WHO Report on the Global Tobacco Epidemic, 2017.
Uniform vs. Tiered Structures
Cigarette prices and taxes tend to be higher with uniform excise structures

6.18
Price and taxation per pack ($PPP)

3.88
Retail price, PPP
Other, PPP
Excise tax, PPP

3.16

1.51

Excise uniform Excise tiers

Note: estimates are averages weighted by the number of cigarette smokers in each country
Source: WHO Report on the Global Tobacco Epidemic 2017
Minimum Specific Excise Tax
In countries applying Ad Valorem or Mixed systems, those with a minimum
specific excise tax tend to have higher cigarette prices and taxes

6.76
Price and taxation per pack ($PPP)

Retail price, PPP

3.47 Other, PPP
Excise tax, PPP

3.79

1.51

Ad valorem/mixed with minimum Ad valorem/mixed without

specific minimum
Note: estimates are averages weighted by the number of cigarette smokers in each country
Source: WHO Report on the Global Tobacco Epidemic 2017
Taxes Are Highly Correlated to
Retail Prices
Price of a Pack of Cigarettes Versus Total Tax on Cigarettes, by
Country Income Group, 2014

Source: NCI-WHO Monograph on the Economics of Tobacco and Tobacco Control (Figure)
Tobacco taxation is more effective if
implemented as part of a tobacco
control package

Return on Investment for implementing all the

tobacco best-buys, including taxation

*The report prioritized calculating the ROI for the WHO NCD best-buy interventions, hence
SSB taxation was not included. However, it is still recommended and listed by WHO as an
effective intervention to reduce consumption of sugary drinks.

16
Best Practices in Tobacco
Tax Policy

Simple and Specific excise tax structures

S
Tax levels and Tax shares need to be
T sufficiently high to impact affordability and
reduce tobacco consumption

O Overcome inflation and income effects by

regular tax increases

P Package tax increases with other effective

interventions to maximize impact
 .

Regional
Comparisons

18
Countries Are Relying More on Specific
Taxes and Less on Ad Valorem

Changes in excise tax structures, Greater reliance on specific excise

2008-2016 within mixed tax systems, 2008-2016
70
70
60
60

Number of countries
50
Number of countries

50
40
40
30
30
20
20
10
10
0
2008 2010 2012 2014 2016
0
2008 2010 2012 2014 2016
Mixed excise
Specific excise Ad valorem Relying more on specific
Mixed excise No excise Relying more on ad valorem

Source: WHO Report on the Global Tobacco Epidemic 2017

ADB Regional Members Have
Specific Excise Tax Structures
Most ADB regional members already implement specific excise taxes on tobacco
30

25
Number of Countries

20

15
28
10

4 5 5
0
2
Specific Excise Mixed, Relying Mixed, Relying Ad Valorem Only No Excise
Only More on Specific More on Ad
Valorem

Source: WHO Report on the Global Tobacco Epidemic 2017

But more needs to be done to
simplify tobacco tax structures …
Among countries applying excise taxes on cigarettes:

ADB Regional Members Rest of the World

24 140

120

18
100
Number of Countries

Number of Countries
80
12

20 19 60
117
40
6

20

0
16
0
Uniform Excise Tiered Excise Uniform Excise Tiered Excise

Source: WHO Report on the Global Tobacco Epidemic 2017

Cigarettes Are Still Affordable:
There Is Much Room For Improvement
Weighted average retail prices and taxation (excise and total) of the Most Sold
Brand (MSB) of cigarettes, by income group, 2016

Price:
Prices and taxation per pack (PPP dollars)

Price minus taxes

PPP $ 7.19
Other taxes
Excise tax per pack
Price
2.51
Price:
PPP $ 4.87
Price:
PPP $ 4.30
0.86
Price: 2.13
1.95 PPP $ 3.09

Total taxes = 0.53

PPP $ 4.68 0.53 1.94
3.82 (65.1% of
pack price)
Total taxes = Total taxes = 2.21 Total taxes =
1.82 PPP $ 2.35 0.42 PPP $ 1.15 PPP $ 2.74
(54.6% of (37.2% of (56.2% of
pack price) 0.73 pack price) pack price)

High-income Middle-income Low-income Global

Note: Averages are weighted by WHO estimates of number of current cigarette smokers ages 15+ in each country in 2015. Prices are expressed in
Purchasing Power Parity (PPP) adjusted dollars or international dollars to account for differences in the purchasing power across countries. Based on 53
high-income, 100 middle-income and 27 low-income countries with data on prices of most sold brand, excise and other taxes, and PPP conversion factors.
Affordability of the Most Sold Brand
(MSB) of Cigarettes
Worldwide Trend (2008-2016)

Trends in affordability of cigarettes, 2008-2016

100%
4 8
90% 7
19
80% 13
(number of countries inside boxes)

70% 4 Could not be assessed due to

Proportion of countries

insufficient data
60%
Cigarettes became more
45
50% affordable
Affordability did not change
40% 15
40
30% Cigarettes became less
affordable
20%
35
10%
5
0%
High income Middle income Low income

Source: WHO Report on the Global Tobacco Epidemic, 2017.

Trends in Affordability of Cigarettes
by WHO Region
Trends in affordability of cigarettes, 2008-2016
100%
2 2
6 3 3 3
Proportion of countries (number of countries inside boxes)

90%
4
3 2
1
80% 10
11
70% Could not be assessed
7 due to insufficient data
2
60% 15
13 Cigarettes became
50% more affordable

Affordability did not

40% 3
25 change
38
30% Cigarettes became less
11 affordable
20% 14
9
3
10% Most ADB
5
0%
Regional
AFRO AMRO EMRO EURO SEARO WPRO Members
Note: Change in affordability computed as the least squares rate of change in the per capita GDP required to purchase 2000 cigarettes of the most sold brand in
local currency in any given year.
The trend rate of growth was not computed for countries with less than 3 data points, or without data on either price or GDP in the year 2016.
Affordability was assessed as not having changed if the least squares trend in the per capita GDP required to purchase 2000 cigarettes over the period 2008-2016
was not statistically significant at the 5% level.

Source: WHO Report on the Global Tobacco Epidemic 2017

More Room To Increase
Tobacco Taxes
Weighted average retail prices and taxation (excise and total) of the Most Sold
Brand (MSB) of cigarettes, by WHO region, 2016
10.00 80.00%

9.00 68.7%
70.00%
8.00
56.4% 55.8% 55.5% 56.5% 56.2% 60.00%
6.86
7.00 50.8%
6.34
5.86 50.00%
6.00
40.3%
4.72 4.87
5.00 40.00%

4.00 3.75 3.77

3.41 30.00%
2.69 2.84
3.00 2.57
2.37 2.21 20.00%
2.00 1.66
1.01 1.03 10.00%
1.00

- 0.00%
AFRO AMRO EMRO EURO SEARO WPRO w/o China All
China

Retail price, PPP Excise tax PPP Total tax share (%)
Most ADB
Regional
Source: WHO Report on the Global Tobacco Epidemic 2017 Members
Concluding Remarks
• Taxation is a critical strategy to reduce the consumption of
health-harming products (tobacco, alcohol, and SSBs).
While taxation’s primary objective relates to health, it
brings positive fiscal benefits too.
• Structure matters. Implementing a simple tobacco tax
structure (uniform and specific excise taxes) is easier to
administer and generates the most public health benefits.
• Taxes need to be sufficiently high to have a significant
public health impact – rates need to be adjusted
periodically to account for inflation and income effects
• Taxation is more effective when implemented as part of a
package of interventions
• Remember the acronym: STOP tobacco!
 .

Thank you
www.who.int/tobacco/economics