Best Practices in Tobacco Taxationtobaccotaxation.org/cms_upload/pages/files/181_frank_j... ·...

Best Practices in Tobacco Taxation

Frank J. Chaloupka, University of Illinois at Chicago

2nd Regional Policy Dialogue on Tobacco Economics in Southeastern Europe

12 December 2019, Skopje, North Macedonia

Effectiveness of Tobacco Taxes

Chapter 4, Conclusion 1:

A substantial body of

research, which has

accumulated over many

decades and from many

countries, shows that

significantly increasing the

excise tax and price of

tobacco products is the

single most consistently

effective tool for reducing

tobacco use.

www.tobacconomics.org | @tobacconomics

http://www.tobacconomics.org/

https://twitter.com/Tobacconomics

Section 3 – Tobacco taxation systems

“Parties should implement the simplest and

most efficient system that meets their public

health and fiscal needs, and taking into account

their national circumstances. Parties should

consider implementing specific or mixed

excise systems with a minimum specific tax

floor, as these systems have considerable

advantages over purely ad valorem systems.”

Recommendations




Excise systems for cigarettes2018

Source: WHO 2019 and author’s calculations

Number of

Countries

(global)

184Total covered

65Specific excise only

41Ad valorem excise only

63Mixture of both excises

15No Excise




Excise systems on cigarettes

Source: WHO 2015

# of countriesCountryBase of tiers

6 Bangladesh, Mozambique, Philippines, Belarus,

Indonesia, Pakistan Retail price

2Burkina Faso, Senegal High, standard and low end cigarettes

1ChinaProducer price

1 Indonesia Production volume

11

Armenia, Belarus, India, Nepal, Georgia, Kazakhstan,

Kyrgyzstan, Moldova, Papua New Guinea, Tajikistan,

Ukraine

filter/non filter

Type

3 Indonesia, India, Philippines hand/machine made

2 Indonesia, Myanmar kretek/white cigarette,

cheerot/cigarette

2 Andorra, Algeria

Tobacco content

(dark/blonde or

dark/light)

3 Brazil, Mozambique, Uganda soft/hard Packaging

4 India, Nepal, Hong Kong, Sri Lanka Cigarette length

2 Andorra, Uzbekistan Trade (domestic/imported)

2 Belize, New Zealand Weight (tobacco content in cigarette)

1 Fiji Leaf content (domestic/imported)




Excise tax structure: Specific and mixed relying more on the specific component tend to lead to higher prices

5,91

5,46

4,57

4,254,08 3,98

2,172,70

2,262,09 2,02

0,00

Specific excise Mixed systemRelying more onspecific excise

Mixed system (all) Ad valorem excise Mixed systemRelying more on ad

valorem excise

No excise

Pri

ce a

nd

taxati

on

per

pack (

$P

PP

)

Retail price, PPP Other taxes, PPP Excise tax, PPP

Source: WHO 2017 GTCR data; unpublished figure.

Notes: 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 prices as of July 2016 for

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.




Source: Chaloupka, et al., 2014

0,00

0,10

0,20

0,30

0,40

0,50

0,60

Sta

nd

ard

Dev

iati

on

, P

rices o

f T

op

5 B

ran

ds

Excise tax structure: Simple specific and mixed relying more on specific tax to lead to less variable prices




Excise tax structure: Specific and mixed relying more on the specific component tend to reduce price gaps


$1,09$1,38$1,50$1,57

$1,84$1,86

$2,27$2,48

$2,93$3,05

$3,22$3,70

$4,37$4,51$4,63$4,75$4,77$4,85$4,97$5,09

$5,27$5,45

$5,75$5,93$5,97$6,06$6,11$6,15$6,16

$6,35$6,35

$6,56$6,66$6,69$6,70$6,81$6,91$6,98

$7,17$7,35

$7,60$7,78

$8,38$8,48

$8,75$9,70

$10,44$11,03

$12,25$18,81

$4,55$5,99

$3,50$5,13

$3,94$3,58

$5,44$6,02$6,16

$3,90$4,46

$7,03$6,83

$7,90$7,41

$8,54$6,02$5,99

$7,81$6,73

$6,59$7,49

$8,33$8,26

$9,35$8,91

$7,35$7,54$7,70

$7,94$8,19$8,20

$7,85$8,03

$8,25$9,90

$8,22$8,53

$8,16$9,51

$8,87$9,40

$9,58$9,52$9,65

$10,08$13,15

$16,62$14,95

$18,81

$0 $5 $10 $15 $20

GeorgiaAzerbaijan

ArmeniaBelarus

Republic of MoldovaKyrgyzstan

TajikistanUzbekistan

Russian FederationKazakhstan

UkraineNorth Macedonia

SwitzerlandCroatiaAlbaniaTurkey

LuxembourgDenmark

SerbiaSlovenia

AustriaItaly

Bosnia and HerzegovinaSlovakia

MontenegroEstoniaSweden

LatviaSpain

CzechiaCyprus

PortugalGreece

BelgiumGermany

IsraelLithuaniaBulgariaFinlandPoland

NetherlandsHungaryRomania

MaltaIcelandFranceNorway

United Kingdom of Great Britain and Northern IrelandIreland

Turkmenistan

EUROPE: Prices of pack of premium brand and cheapest brand of cigarettes, international dollars, 2018

Cheapest brand Premium brand

Source: WHO 2019



Recommendations

Section 2 – Relationship between tobacco taxes,

price and public health:

“When establishing or increasing their national levels of

taxation Parties should take into account – among other

things – both price elasticity and income elasticity of

demand, as well as inflation and changes in household

income, to make tobacco products less affordable

over time in order to reduce consumption and

prevalence. Therefore, Parties should consider having

regular adjustment processes or procedures for periodic

revaluation of tobacco tax levels.”





“Parties should establish coherent long-term policies

on their tobacco taxation structure and monitor on a

regular basis including targets for their tax rates, in

order to achieve their public health and fiscal

objectives within a certain period of time.”

“Tax rates should be monitored, increased or

adjusted on a regular basis, potentially annually,

taking into account inflation and income growth

developments in order to reduce consumption of

tobacco products.”

Recommendations




Source: WHO 2019

Change in AffordabilityEurope, 2008-2018, Annual Average


-5,00%

0,00%

5,00%

10,00%

15,00%

Arm

en

ia

Ge

org

ia

Ma

lta

Ire

lan

d

Nort

h M

ace

do

nia

Ge

rma

ny

Bu

lga

ria

Sw

ed

en

Uzbe

kis

tan

Latv

ia

Den

ma

rk

Slo

va

kia

Ice

lan

d

Au

str

ia

Sw

itze

rlan

d

Alb

an

ia

Kyrg

yzsta

n

Unite

d K

ing

do

m

Tu

rke

y

Fra

nce

Be

lgiu

m

Neth

erl

an

ds

Czech

ia

Ta

jikis

tan

Rom

an

ia

Norw

ay

Luxe

mb

ourg

Po

rtug

al

Esto

nia

Cro

atia

Lith

uan

ia

Ka

za

kh

sta

n

Slo

ve

nia

Isra

el

Italy

Fin

land

Hun

ga

ry

Rep

ub

lic o

f M

old

ova

Be

laru

s

Azerb

aija

n

Po

lan

d

Sp

ain

Cypru

s

Gre

ece

Bo

sn

ia a

nd H

erz

eg

ovin

a

Se

rbia

Ukra

ine

Russia

n F

ed

era

tio

n

Mo

nte

ne

gro

Tu

rkm

en

ista

n



Affordability & Cigarette SmokingPrevalence, Indonesia, 2001-2014

Sources: Euromonitor; EIU; World Bank, and authors’ calculations

30,00

31,00

32,00

33,00

34,00

35,00

36,00

0,035

0,045

0,055

0,065

0,075

0,085

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Adult S

mokin

g P

revale

nce

Rela

tive I

ncom

e P

rice,

100 p

acks

Affordability Smoking Prevalence




Text of Guidelines

“As recognized in Guiding Principle 1.1, Parties have the

sovereign right to determine and establish their taxation

policies, including the level of tax rates to apply. There is no

single optimal level of tobacco taxes that applies to all countries

because of differences in tax systems, in geographical and

economic circumstances, and in national public health and fiscal

objectives. In setting tobacco tax levels, consideration could be

given to final retail prices rather than individual tax rates. In this

regard, WHO had made recommendations on the share of

excise taxes in the retail prices of tobacco products1.”

1 WHO technical manual on tobacco tax administration. Geneva, World

Health Organization, 2010. (Recommends that tobacco excise taxes account

for at least 70% of the retail prices for tobacco products).




Average Price of the Most Sold Brand & Excise Tax per pack, and Excise Tax Share

Source: WHO 2019




Source: WHO 2019www.tobacconomics.org | @tobacconomics

87,4%83,8%83,6%

82,5%81,4%81,4%81,3%81,2%

80,0%79,4%79,4%79,3%79,2%78,8%78,4%78,2%

77,6%77,3%77,1%77,0%76,8%

76,0%75,9%75,4%75,3%

74,7%74,4%74,2%73,8%

72,3%71,8%71,7%71,2%

68,6%68,4%68,4%68,3%

67,2%64,0%

60,3%58,0%57,7%

55,5%52,4%

50,9%48,6%

44,7%42,3%

38,1%35,3%

32,4%

0% 25% 50% 75% 100%

FinlandBosnia and Herzegovina

BulgariaFranceTurkey

MontenegroNorth Macedonia

GreeceLatvia

United Kingdom of Great Britain and Northern IrelandEstoniaAndorraSlovenia

CroatiaIrelandSpainMalta

SerbiaSlovakiaBelgiumPoland

ItalyIsrael

CzechiaAustria

UkraineCyprus

DenmarkLithuaniaHungary

NetherlandsPortugalGeorgia

RomaniaSweden

GermanyLuxembourg

AlbaniaNorway

SwitzerlandRepublic of MoldovaRussian Federation

IcelandKazakhstan

BelarusKyrgyzstanUzbekistan

TajikistanArmenia

AzerbaijanTurkmenistan

% excise tax

Data not reported/not available for: Monaco and San Marino.

Share of Total &Excise Tax per PackMost Sold Brand, Europe, 2018




“All tobacco products should be taxed in a comparable

way as appropriate, in particular where the risk of

substitution exists.”

“Parties should ensure that tax systems are designed in a

way that minimises the incentive for users to shift to

cheaper products in the same product category or to

cheaper tobacco product categories as a response to tax

or retail price increases or other related market effects.”

“In particular, the tax burden on all tobacco products

should be regularly reviewed and, if necessary, increased

and, where appropriate, be similar.”

Recommendations




Price & Other Tobacco Product Use

• Consistent evidence on own-price effects

– Generally find demand for OTP and vaping products more

responsive to price than cigarette demand

• Mixed evidence on substitution among various

products

– Greater substitution among more similar products (e.g.

cigarettes and other combustibles)

– Some evidence of substitution between cigarettes and

vaping products

– Weak evidence of complementarity between combustibles

and other non-combustibles




Cigarette & Roll-Your-Own Tobacco Taxesas Percent of Price, Europe, 2018

Source: WHO 2019www.tobacconomics.org | @tobacconomics

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

80,0%

90,0%

RYO Tax Share Cigarette Tax Share



Section 4 – Tax administration

“Parties should ensure that transparent licence or equivalent approval or

control systems are in place.”

“Parties are urged to adopt and implement measures and systems of storage

and production warehouses to facilitate excise controls on tobacco

products.”

“In order to reduce the complexity of tax collection systems, excise taxes

should be imposed at the point of manufacture, importation or release for

consumption from the storage or production warehouses.”

“Tax payments should be required by law to be remitted at fixed intervals or on

a fixed date each month and should ideally include reporting of production

and/or sales volumes, and price by brands, taxes due and paid, and may

include volumes of raw material inputs.”

“Tax authorities should also allow for the public disclosure of the information

contained within the reports, through the available media, including those

online, taking into account confidentiality rules in accordance with national law.”

Recommendations




Section 4 – Tax administration

“In anticipation of tax increases Parties should consider

imposing effective anti-forestalling measures.”

“Where appropriate, Parties should consider requiring the

application of fiscal markings to increase compliance with

tax laws.”

“Parties should clearly designate and grant appropriate

powers to tax enforcement authorities.”

“Parties should also provide for information sharing among

enforcement agencies in accordance with national law.”

“In order to deter non-compliance with tax laws, Parties

should provide for an appropriate range of penalties.”

Recommendations




Philippines Experience Stockpiling

Source: Ross & Tesche, 2015




California’s Encrypted Cigarette Tax Stamps

2005-2010

2011-present

Cigarette Tax Stamps Sold Projected and actual, California, 2000 - 2013

800.000

900.000

1.000.000

1.100.000

1.200.000

1.300.000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Cig

arr

ett

e S

tam

ps S

old

(in

th

ou

san

ds)

Actual Expected 3% Decline

2010 Stamp2010 Stamp

2005 Stamp

Source: Chaloupka, et al., 2015




Combating Illicit Tobacco Trade• Illicit trade protocol to the WHO FCTC

– Adopted November 2012; entered into force

September 2018

– Strong tax administration

• Prominent, high-tech tax stamps and other pack markings

• Licensing of manufacturers, exporters, distributors, retailers

• Export bonds

• Unique identification codes on packages

– Better enforcement

• Increased resources

• Focus on large scale smuggling

– Swift, severe penalties

– Multilateral/intersectoral cooperation




Section 5 – Use of Revenues – Financing of

Tobacco Control

“Parties could consider, while bearing in mind

Article 26.2 of the WHO FCTC, and in

accordance with national law, dedicating

revenue to tobacco-control programmes,

such as those covering awareness raising,

health promotion and disease prevention,

cessation services, economically viable

alternative activities, and financing of

appropriate structures for tobacco control.”

Recommendations




Taxes & Tax Revenues, South Africa

Sources: Blecher & Van Walbeek, 2014

0

2

4

6

8

10

12

0

2

4

6

8

10

12

19

61

19

66

19

71

19

76

19

81

19

86

19

91

19

96

20

01

20

06

20

11

Exci

se r

eve

nu

e (

bill

ion

s, c

on

stan

t 2

01

2 R

and

s)

Exci

se t

ax p

er

pac

k (c

on

stan

t 2

01

2 R

and

s)

Excise Tax per Pack and Excise Tax RevenueSouth Africa, Inflation Adjusted, 1961-2012

Excise tax Excise revenue




Cigarette Tax and RevenueUkraine: 2008-2015

Average excise rate for cigarettes – increased 10-fold

Cigarette Tax Revenue – increased 6-fold

Source: Syvak and Krasovsky, 2017

3,5

5,5

7,5

9,5

11,5

13,5

15,5

17,5

19,5

21,5

25

75

125

175

225

275

325

2008 2009 2010 2011 2012 2013 2014 2015

Tax R

evenues,

Bill

ions

Cig

are

tte E

xcis

e T

ax, 1000 S

ticks

Average excise per 1000 cigarettes, UAH Tobacco excise revenue, bln UAH




Source: ImpacTeen Project, UIC; YRBS

19

21

23

25

27

29

31

33

35

37

$0

$200

$400

$600

$800

$1.000

1991 1994 1997 2000 2003 2006 2009

Percen

t C

urren

t S

mo

kin

g

To

tal

Fu

nd

ing

$M

illio

ns (

FY

10

dollars)

Year

State Tobacco Control ProgramFunding and Youth Smoking Prevalence,

United States, 1991-2009

total state program funding high school prevalence




Tobacco Taxes and Revenues

•The Addis Ababa Action Agenda states:

“… 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”




Section 6 – Tax-Free/Duty-Free Sales

“Parties should consider prohibiting or

restricting the sale to and/or importation by

international travellers, of tax-free or duty-free

tobacco products.”

Recommendations




Summary

Significant tobacco tax increases most

effective way to reduce tobacco use

• Simple, uniform tax systems more effective in

promoting public health and raising revenues

• Need to increase taxes to reduce affordability

• Strong tax administration important for

maximizing health and revenue impact

Summary




THANK YOU!

For more information:

www.tobacconomics.org

@tobacconomics

[email protected]


Best Practices in Tobacco Taxationtobaccotaxation.org/cms_upload/pages/files/181_frank_j... ·...

Documents

Transcript of Best Practices in Tobacco Taxationtobaccotaxation.org/cms_upload/pages/files/181_frank_j... ·...