Higher tobacco taxes decrease consumption

Manjari Peiris

A very effective method for reducing tobacco consumption is to increase the price of tobacco products through tax increases. Higher tobacco prices would encourage cessation among existing tobacco users, prevent initiation among potential users; and reduce the quantity of tobacco consumed among continuing users.

Higher taxes are particularly effective in reducing smoking amon.g vulnerable populations, such as youth, pregnant women, and low-income smokers. The World Bank recommends adopting tax policies of countries with comprehensive tobacco control policies where tobacco consumption has fallen. Such countries have tobacco taxes between two-thirds to four-fifths of retail price.

Few low and middle-income countries achieve this level of taxation, and most can significantly increase their tax levels.

Thus increasing the price of tobacco through tax increases will decrease its consumption, save lives and raise tax revenue.

Higher tobacco taxes decrease consumption

Increasing tobacco taxes to achieve a 10 percent increase in tobacco prices will decrease tobacco consumption by four percent in high-income countries and by about eight percent in low and middle-income countries.

Higher tobacco taxes save lives

If tax increases result in a 10 percent increase in cigarette prices, the number of smokers worldwide would decline by 42 million (38 million in low/middle-income countries and four million in high-income countries) saving 10 million lives (nine million in low/middle-income countries and one million in high-income countries).

A 70 percent increase in the price of tobacco could prevent up to a quarter of all deaths caused by smoking worldwide.

Youth and low-income people are much more sensitive to the price of goods than those with higher incomes. Youth have less money to spend, and higher tobacco taxes make tobacco products less affordable for them.

People with low incomes spend a larger percentage of their income on tobacco than those in higher income brackets. Tobacco tax increases can help motivate low-income groups to reduce the amount of tobacco consumed or to stop using tobacco altogether, by allowing them to reallocate their money to food, shelter, education and health care.

Higher tobacco taxes increase government revenue

A tax increase directly benefits governments through increased revenues. Every nation and sub-national entity with an efficient tax system that has significantly increased its cigarette tax has enjoyed substantial increases in revenue, even while reducing smoking.

In South-East Asia, a study indicated that a five percent increase in real cigarette prices from higher taxes would generate substantial additional revenue for the region. Such a tax would generate an extra USD $8,300 million in Indonesia, USD $4,750 million in Thailand, USD $994 million in Bangladesh, USD $725 million in Sri Lanka, and USD $440 million in Nepal by 2010, compared to their revenue in 2000.

WHO Framework Convention on Tobacco Control (FCTC) Article 6 of the FCTC recommends parties take into account tax policies and price policies as a part of their overall national health policy. WHO recommends governments raise tobacco taxes to reduce tobacco consumption. All tobacco products should be taxed at similar rates to prevent product substitution due to price differences and must be regularly adjusted for inflation.

Key components of tax increases

Tobacco taxes should be increased to international standards and all countries should attain tax rates of at least two-thirds to four-fifths of the retail price of tobacco products.

Tax on all tobacco products should be levied equally. All products must be taxed at equivalent rates to prevent tobacco users from switching tobacco brands and types due to price differences.

Should ensure that tobacco taxes are passed on to the consumer in the form of increased prices.

Should tie tobacco tax to the rate of inflation and consumer purchasing power and adjust taxes so that retail prices of tobacco products increase by at least the sum of the inflation rate and the per capita GDP growth.

Allocate tobacco tax revenues to tobacco control or other health programs. High income countries have found that the public will support tobacco tax increases more strongly when the tax revenue is directed towards tobacco prevention or other health programs.

Also, by supporting programs that prevent youth from starting to use tobacco and help people quit, countries can further reduce tobacco use and save lives.

Key messages

Raising tobacco taxes is the single most effective way to reduce tobacco use and save lives.

Higher tobacco taxes target our most vulnerable populations, preventing youth from starting to smoke and helping low-income populations quit.

Higher tobacco taxes increase Government revenues, even with reduced consumption.

Increased revenue from tobacco taxes can provide the government with funds for other tobacco control efforts, further reducing tobacco use and saving lives.

A new study published online by American Journal of Public Health too provides important new evidence that cigarette tax increases and mass media public education campaigns can significantly reduce smoking.

The WHO recommends that nations should implement a package of six cost-effective solutions called MPOWER to effectively reduce tobacco use.

Monitor tobacco use and assess the impact of tobacco prevention and cessation efforts;

Protect everyone from secondhand smoke with laws that require smoke-free workplace and public places;

Offer help to every tobacco user to quit;

Warn and effectively educate every person about the dangers of tobacco use with strong, pictorial health warnings and hard-hitting, sustained media campaigns;

Enact and enforce comprehensive bans on tobacco advertising, promotion and sponsorships and on the use of misleading terms such as “light” and “low-tar;” and

Raise the price of tobacco products by significantly increasing tobacco taxes.

According to the WHO, tobacco use is the leading cause of preventable death in the world today and will kill one billion people worldwide this century unless nations act now to save lives.

Tobacco use already kills 5.4 million people a year and the epidemic is worsening, especially in the developing world where more than 80 percent of tobacco-caused deaths will occur in the coming decades. However, this epidemic is entirely preventable if nations urgently implement proven solutions.

New study

This new study adds to the overwhelming body of evidence that these solutions work and should spur governments to take urgent actions to protect the health of their citizens from tobacco use, the world’s leading cause of preventable death.

The study, conducted by a team of Australian researchers, examined the impact of several tobacco control policies on adult smoking rates in Australia over a 10-year period. The study found that government action can effectively reduce tobacco use. Key findings include:

Higher cigarette prices resulting from tax increases have led to rapid reductions in adult smoking rates, even when controlling for other factors. According to the study, increases in the cost of a pack of cigarettes created measurable declines in smoking rates.

Well-funded and sustained tobacco control media campaigns significantly reduced smoking rates.

The study concludes that media campaigns must be adequately funded to ensure sufficient exposure to the public and must be sustained over time.

The results of the study demonstrate that raising the price of tobacco by increasing tobacco taxes will reduce smoking, but an even greater impact can be achieved by using some of the revenue from the tobacco tax to fund a sustained media campaign.

Tax increases

Tobacco industry claims that tax increases on tobacco products will lead to increased smuggling, illegal cigarette production and related criminal activity. However cigarette taxes are not the primary reason for cigarette smuggling and cigarette tax avoidance.

The World Bank has demonstrated that levels of smuggling tend to increase with the degree of corruption in a country.

Many countries have significantly increased tobacco taxes without experiencing changes in smuggling/illicit productions. Experience shows that these illegal activities can be controlled by legal means and by law enforcement.

Revenue generated by a tax increase can finance these activities.

The benefits of higher tobacco taxes in terms of health and revenue have been significant even in countries where smuggling exists. Higher taxes reduce consumption and increase government revenue, even in the presence of cigarette smuggling.

Tobacco use imposes costs on families and governments in the form of healthcare costs for tobacco related diseases and lost productivity due to premature deaths. Smoking imposes costs on non-smokers who develop diseases and or die prematurely due to secondhand smoke exposure.

Therefore governments have the responsibility to intervene to prevent children from starting to use and to reduce the costs that tobacco use imposes on the whole society.