Ayda A. Yurekli

Tobacco Control Economics

Tobacco Free Initiative

WHO

The answer is WHO FCTC

Improving the crop quality and fair living for farmers Subsidies for growers Common policy HICs have stopped (USA, EU) Still ongoing in LMICs (e.g. Philippines, Indonesia,

Thailand) Price policies Encouraging farmers to stop growing tobacco in poor

quality leaf producing areas (e.g. China, previously in Turkey)

WHY TAXATION? “The Parties recognize that price and tax measures are an

effective and important means of reducing tobacco consumption by various segments of the population, in particular young persons.” (Framework Convention on

Tobacco Control, Article 6)

Promotes public health Encourages adults smokers to quit smoking Deterring young people to take the behavior

Cigarette Prices and Adult Smoking Prevalence, United States, 1970-2007

19

23

27

31

35

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006

Prev

alen

ce

$1.25

$1.75

$2.25

$2.75

$3.25

$3.75

$4.25

Pric

e (D

ec. 2

007

dolla

rs)

Prevalence Price

6

Source: Frank Chaloupka 2010

8 Source: BI Economics of Tobacco Control Series: Mexico by Waters et al, 2010

25.0%

29.0%

33.0%

37.0%

$3.00 $4.00 $5.00

Perc

ent Q

uitte

rs

Price (dollars per pack)

Cigarette Prices and Percentage of Ever Smokers Who Have Quit Smoking, U.S. States, 2005

10

Source: Frank Chaloupka 2011

50

100

150

200

250

300

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

1980 1985 1990 1995 2000 2005

Price

/Dea

ths (%

Rela

tive t

o 19

80)

Numb

er/ad

ult/da

y

Year

Lung Cancer Deaths: males age 35-44/4

Relative Price

Number cigarettes/adult/day

France: smoking, tax and male lung cancer, 1980-2000

Source: Jha, 2009

Source: Frank Chaloupka 2011

6

11

16

21

26

31

36

$2.50

$3.25

$4.00

$4.75

$5.50

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Sm

okin

g P

reva

lenc

e

Pric

e pe

r pac

k (8

/11

dolla

rs)

Year

Cigarette Price and Youth Smoking Prevalence United States, 1991-2011

Cigarette Price 12th grade prevalence10th grade prevalence 8th grade prevalence

WHY TAXATION? “Sugar, rum and tobacco are commodities which are no where necessaries of life, which are become objects of almost universal consumption, and which are therefore

extremely proper subjects of taxation” (Adam Smith, Wealth of Nations, 1776)

Efficient revenue generation Low share of tax in price in most countries Relatively inelastic demand for tobacco products Few producers and few close substitutes

15

Source: Van Walbeek, 2003

Inflation Adjusted Cigarette Taxes and Cigarette Tax Revenues, South Africa, 1961-2003

Higher taxation that lead to higher prices…. Tax levels and prices, vary widely across countries

Table: Global Cigarette Taxes and Prices 2010

Source: WHO Report on the Global Tobacco Epidemic (WHO GTCR) 2011

Can LMICs replicate EU rates? Table: EU 2011

Source: Authors calculation from publicly available EU Directorate 2011

Higher tax share does not mean higher prices

Source: Author's calculation by publicly available EU Directorate 2011

Impact of tobacco taxes on tobacco use depends on impact of tax on prices of tobacco products

Most evidence (largely from the United States) indicate that tobacco tax increases result in comparable or larger tobacco product price increases

This is very likely NOT the case for LMICs

Impact on prices will vary based on several factors, including:

Structure of excise tax system – complex tax system

Types of excises levied and for ad valorem taxes, the tax-base

Structure of tobacco product market- India, Indonesia

Cost of tobacco product production

Industry price-related efforts

Pakistan – new brands similar to existing ones but cheaper

Egypt, and Senegal Industry pricing game

Potential for individual tax avoidance and larger scale, more

organized tobacco product smuggle

22

Cigarette Taxation Globally Excise System on Cigarettes

Income Group

Only specific

Only ad valorem

Both specific and

ad valorem

No Excise Total countries *

High 11 2 25 7 45 Upper Middle

16 11 9 6 42

Lower Middle

18 19 12 3 52

Low 10 28 2 3 43 By Region AFRO 14 29 1 2 46 AMRO 13 16 2 3 34 EMRO 1 7 5 7 20 EURO 10 3 36 0 49 SEARO 3 2 2 1 8 WPRO 14 3 2 6 25 All Countries

55 60 48 19 182

* Countries for which data are available Source: WHO calculations using WHO GTCR 2009 data

Complex tax systems & limited technical capacity of tax administrators to understand how taxes work Tax administrators often

Responsible for wide range of taxes including indirect taxes (e.g excises)

Receive proposals by tobacco industry, showing risks of increasing taxes

Do not have time to be expert in one area Most are not familiar with the tobacco market, pros

and cons of types of excises on revenues, manufacturers' pricing tactics etc.

Health concerns are left to MoH and are excluded from tax discussions

We need to understand: how the excise systems are set What are the pros and cons of current system, and how to

eliminate the cons Set your objectives- what do we want?

Higher prices With or without tax increases?

Reduce price gap among tobacco products, Bring all tobacco products under the tax umbrella, Create support for tax increases by encouraging the

governments to invest in TC efforts including smoking cessation via tax revenues.