Taxation as an effective public policy tool to curb smoking in poor countries

NCDAPA has been a vocal advocate for the introduction of more punitive taxes on tobacco products in low income countries (see our article on World No Tobacco Day 2016). The Economist, in its print edition from June 3rd, equally argues for the efficiency of increasing levies on cigarettes.

While rich countries managed to curb smoking over the past years, the number of smokers is on the rise in many poor countries. In some Asian countries men are as likely to smoke as they were in the USA 50 years ago, when studies on the disastrous effects of tobacco products were still news to many smokers. After high blood pressure, smoking is the biggest cause of ill health and early death, which puts the annual costs from illness and lost productivity at $1.4 trillion (1.8% of global GDP), according to the Economist. As with NCDs in general, the Asia Pacific is one of the world’s most affected regions in terms of tobacco use and its impact on health. 6000 people die prematurely every day from tobacco-related diseases in the region, equalling 2.3 million deaths per year.

Rich countries have already proven how to encourage people to drop the bad habit: a combination of tax increases and public health education. The tax rate on cigarettes in poor countries is typically set below 50% – in some even zero. As large tobacco companies can cut their profit margins on cheaper brands and raise them on their high-end products, they manage balance their losses. It would be easy for low income countries to raise taxes but according to the Economist they don’t because they have relied on market studies paid for by tobacco companies. These studies suggest that high taxes on cigarettes cause a surge in smuggling, thereby reducing overall tax revenue. However, recent studies by the World Bank have proven that the black market does not pose a significant threat as the revenues raised by higher taxes can help supress smuggling and black market activity.

There is practical evidence to support the call for tax increases on cigarettes. The Philippines quadrupled taxes on all kinds of cigarettes in 2012. Prices for the cheapest brands (accounting for more than 65% of all cigarettes sold) rose by 50%. In 2011-2015 tax revenues more than doubled and most importantly the share of adults who smoked fell from 30% to 25%. A similar reduction in smoking rates took over a decade in Great Britain.

The Economist suggests to make taxes predictable and punitive by introducing a uniform tax on every pack to help governments monitor tax compliance and predict revenues. The World Health Organisation recommends that taxes should be at least 75% of the retail price of the most popular brand of cigarettes and rise with inflation and income growth.

by Moritz Laqua: Moritz has been working with NCDAPA since 2015. Before joining, he completed a traineeship in GIZ’s corporate development department, contributing to alliance building and strategic partnership management. At NCDAPA he works on external relations and policy, regularly providing articles and updates on political and legal developments within the field of NCDs. Moritz holds postgraduate degrees in Law and International Relations from the University of Munich and the London School of Economics and Political Science (LSE). He is currently positioned in Southeast Asia.

To read the full article please visit The Economist – Cough up: How to cut smoking in poor countries