Raising Revenue & Cutting Costs: Excise Taxes &...

Raising Revenue & Cutting Costs: Excise

Taxes & HealthFrank J. Chaloupka, University of Illinois at Chicago

Economic Commission for Latin America and the Caribbean

XXX Regional Fiscal Policy Seminar

27 March 2018, Santiago, Chile1

Overview

• Health & Economic Impact of Non-

Communicable Diseases

• Impact of Tobacco, Alcohol, and

Sugary Beverage Taxes

• Taxes and Tax Revenues

www.tobacconomics.org

Health & Economic Impact of NCDs

Leading Causes of Death Globally

Source: World Economic Forum & Harvard School of Public Health, 2011

Other Conditions include communicable diseases, maternal/perinatal conditions, and nutritional deficiencies

10 million

15 million

20 million

25 million

High-income

countriesUpper

middle-income

Lower

middle-income Low-income

countries

0.6M

0.5M

3.3M

2.3M

10.2M

3.3 M3.0M

3.0M

5.9M

2.3M

6.8 M

3.7M

13.6M

1.1M0.9M

Low-income countriesGroup III - InjuriesGroup II – Other deaths from noncommunicable diseases

Group II – Premature deaths from noncommunicable diseases (below the age of 60), which are preventable

Group I – Communicable diseases, maternal, perinatal and nutritional conditions

Total Deaths by Income So

urc

:

Source: WHO 2010

• Large economic burden from NCDs:

• Large, growing health care costs from

treating NCDs

• Significant lost productivity

• Cause of poverty

• Account for much of inequalities in health

Economic Consequences of NCDs


Significant Economic Costs

Source: World Economic Forum & Harvard School of Public Health

• Significant direct and indirect costs

• Tobacco use: > $1.4 trillion in 2012

• Equivalent to 1.8% of global GDP

• Alcohol use: 2.1% - 2.5% of GDP

• Obesity: ~$2 trillion in 2014

• Equivalent to 2.5% of global GDP

Sources: Goodchild, et al., 2017; WHO, 2017; McKinsey, 2014

Economic Costs of Unhealthy

Behaviors


Taxes, Prices andUnhealthy Behaviors

"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.


Cigarette Price & ConsumptionMexico, 2001-2014, Inflation Adjusted

Sources: EIU, Euromonitor, and World Bank


23

25

27

29

31

33

35

37

39

41

43

29,000

34,000

39,000

44,000

49,000

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

Prices (

2015 p

esos p

er

pack)

Cig

are

ttes (

mill

ions)

Cigarettes (millions) Prices (2015 pesos)

Adult Smoking Prevalence & Price

Sources: Ministry of Health, Brazil; EIU; World Bankwww.tobacconomics.org

Source: Paraje, 2017

Cigarette Price & Youth Smoking Prevalence Chile, 2000-2015

@tobacconomics

Who Pays& Who BenefitsTurkey, 25% Tax Increase

Source: Adapted from Önder & Yürekli, 2014

-35.3%

-20.4%

-18.5%

-2.2%

8.5% 9.7%

-36%

-31%

-26%

-21%

-16%

-11%

-6%

-1%

4%

9%

Change in Consumption Change in Taxes Paid

Sources: Euromonitor; World Bank; and author’s calculations

100

120

140

160

180

200

220

175

225

275

325

375

425

475

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Price p

er

Litre

, 2016 U

AH

Mill

ion L

itre

s

Distilled Spirits Sales and PricesUkraine, 2002-2016, Inflation Adjusted

Sales Volume, Million Litres Real Price

Soda Consumption & ObesitySelected Countries

Source: Soda consumption from Euromonitor, 2011; Obesity prevalence from OECD Health Data, 2005

0%

5%

10%

15%

20%

25%

30%

35%

0

20

40

60

80

100

120

140

160

180

Perc

en

t O

bese

Lit

ers

per

Pers

on

Liters of Soda per Person Adult Obesity Prevalence

Soft Drink Prices & ConsumptionPercentage Change, 2000-2014, Selected Countries

Source: Euromonitor, 2015, and author’s calculations

Changes in sales of sugar-sweetened beverages in Mexico before (2007-2013) and after the tax (2014-2016): https://www.insp.mx/epppo/blog/4278-changes-sales-

beverages.html

Colchero MA, Guerrero Lopez C, Molina M, Rivera J . Beverage sales in Mexico before and after implementation of a sugar sweetened beverages tax. 2016. PLoS

ONE. 11(9).

Impact of Sugary Drink Tax on SalesMexico, 2007-2016

https://www.insp.mx/epppo/blog/4278-changes-sales-beverages.html

24

Figure 17.3 Tobacco Control Policies and Cost Per Healthy Life-Year Gained, by WHO Region

Note: HLYG = healthy life-year gained.

Source: Based on calculations from World Health Organization CHOICE model, 2016.

Tobacco, Alcohol & Sugary Drink

Taxes

Cigarette Taxes as Percent of Retail PriceJuly 2016

WHO, 2017

Alcoholic Beverage Excise Taxesby Beverage Type

WHO, 2017

Sugary Drink Taxes, August 2016

http://library.crossfit.com/free/pdf/CFJ_SipBecomes_Drag_Cecil_Map.jpg

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 Tax RevenuesUkraine: 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

Taxes and Tax RevenuesCanada, 1990/91-2014/15

Source: tobacconomics, 2017@tobacconomics

The Laffer Curve – Argentina

Source: Tobacconomics, 2018

2016

2017

0

500

1000

1500

2000

2500

3000

3500A

dd

itio

na

l ta

x r

eve

nu

e (

mil

lio

n d

oll

ars

-IP

C m

arc

h

20

16

=1

00

)

Tax rate


Source: tobacconomics, 2018www.tobacconomics.org

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Pe

rce

nt o

f To

tal Ta

x R

eve

nu

e

Argentina Brasil Chile Colombia Uruguay

Tobacco tax revenue as a percentage of Total tax

revenues – South America 1990-2014

Source: ECLAC, 2017www.tobacconomics.org

Alcohol tax revenue as a percentage of total tax

revenues – Selected Central American &

Caribbean Countries 2000-2015

www.tobacconomics.orgSources: Euromonitor, World Bank, and Authors’ Calculations

www.tobacconomics.orgSource: Adapted from Jeremias Paul, 2017

www.tobacconomics.orgSource: Jeremias Paul, 2017

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”

Summary

Conclusions

• Higher tobacco and alcohol taxes, new sugary

beverage taxes significantly reduce consumption

• Reduced consumption leads to fewer NCDs,

less spending on health care, increased

productivity, and improved development

• At the same time, tax increases/new taxes will

generate significant new revenues in short to

medium term


For more information:

Tobacconomics

http://www.tobacconomics.org

@tobacconomics

[email protected]

http://www.tobacconomics.org/

Extra Slides

• Industries and allies use several common

arguments in opposition to tax increases:

• Won’t have the intended impact in terms of

reducing use and consequences

• Will lead to extensive tax avoidance and tax

evasion

• Will harm poor and working class consumers

• Will lead to massive job losses

Common Oppositional Arguments


Tax Avoidance & Evasion

Tax Avoidance & Evasion Do NOT Eliminate Health Impact of Higher Taxes

Source: Schroth, 2014

Cook County Cigarette Tax and Tax Revenues - FY01-FY06

$0.15

$0.35

$0.55

$0.75

$0.95

$1.15

$1.35

$1.55

$1.75

2001 2002 2003 2004 2005 2006

Fiscal Year

Tax p

er

Pack

$25,000,000

$45,000,000

$65,000,000

$85,000,000

$105,000,000

$125,000,000

$145,000,000

$165,000,000

$185,000,000

$205,000,000

$225,000,000

Tax R

even

ues

Tax Revenues

Chicago tax rises

from 16 to 48 cents

Chicago tax up

to 68 cents, 1/1/06

Chicago smoking

ban, 1/16/06

Tax Avoidance & Evasion Do NOT Eliminate Revenue Impact of Higher Taxes

Illicit Cigarette Market Share& Cigarette Prices, 2012

Algeria

ArgentinaAustralia

Austria

Azerbaijan

Belarus

Begium

Bolivia

Bosnia

Brazil

Bulgaria

Cameroon

Canada

Chile

China

Colombia

Costa RicaCroatia

Denmark

Dominican Republic

Ecuador

Egypt

Estonia

Finland

France

Georgia

Germany

GreeceGuatemala

Hungary

India

Indonesia

IranIreland

IsraelItaly

JapanKazakhstan

Kenya

Latvia

Lithuania

Malaysia

Mexico

MoroccoNetherlands

New Zealand

Nigeria

Norway

Pakistan

Peru

Philippines

Poland

Portugal

South Korea

Turkey

Russia

Saudi Arabia

Serbia

Singapore

Slovakia

Slovenia

South Africa

Spain

Sweden

Switzerland

ThailandMacedonia

Tunisia

Romania

Ukraine

UAE

United Kingdom

USA

Uruguay

Uzbekistan

Venezuela

Vietnam

y = -0.0076x + 0.1752R² = 0.0496

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

0 2 4 6 8 10 12 14

Illic

it t

rad

e sh

are

as %

of

lega

l cig

aret

te c

on

sum

pti

on

Price USD

Sources: Euromonitor, WHO

• Corruption

• Weak tax administration

• Poor enforcement

• Presence of informal distribution

networks

• Presence of criminal networks

• Access to cheaper sources

Drivers of Illicit Tobacco


Sources: NRC/IOM 2015; NCI/WHO 2016

Smuggling and Corruption, 2011

Algeria

Argentina

Australia

Austria

Azerbaijan

Belarus

Belgium

Bolivia

Bosnia

BrazilBulgaria

0.16

Canada

Chile

China

Colombia

Costa Rica

Croatia

Denmark

Dominican Republic

Ecuador

Egypt

Estonia

Finland

France

GeorgiaGermany

Greece

Guatemala

Hungary

India

Indonesia

Iran

Ireland

IsraelItaly

JapanKazkhstan

Kenya

Latvia

LithuaniaMalaysia

Mexico

Morocco Netherlands

New Zealand

Nigeria

Norway

Pakistan

Peru

Philippines

Poland

Portugal

South Korea

Romania

Russia

Saudi Arabia

SerbiaSingapore

Slovakia

Slovenia

South Africa

Spain

Sweden

Switzerland

Thailand

MacedoniaTunisia

Turkey

Ukraine

United Arab Emirates

United Kingdom

United States

Uruguay

Uzbekistan

Venezuela

Vietnam

y = -0.0131x + 0.2028R² = 0.0815

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

1 2 3 4 5 6 7 8 9 10

illic

it c

igar

ette

tra

de

volu

me

Transparency Index

Sources: Euromonitor, Transparency International

Figure 12 – Estimated Volumes of Cigarettes Consumed in the U.K. – Duty paid, illicit, and cross-border shopping, 2000-01 – 2013-14

Source: HM Revenue & Customs, 2014

@tobacconomics

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

– Adopted November 2012; currently in process of being

signed/ratified; provisions calling for:

– 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


Beverage Tax Avoidance & Evasion

Little evidence of significant tax avoidance &

evasion• low taxes relative to prices

• costly to avoid/evade taxes

• Illinois – recent experiences with beer taxes• IL – raised tax from 7 cents/gallon to 18.5 cents/gallon, August 1999;

again to 23.1 cents/gallon September 2009

• Iowa – 19 cents/gallon throughout

• Indiana - 11.5 cents/gallon throughout

• Wisconsin – 6.45 cents/gallon throughout

@tobacconomics

Source: Brewers’ Almanac, 2013, and author’s calculations

167.3%

3.5% 2.8% -3.5%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

IL IA IN WI

Percent Change in State Beer Taxes Revenues, Il, IN, IA & WI, 1998-2000

Source: Brewers’ Almanac, 2013, and author’s calculations

22.7%

-1.0%

-3.6%-4.2%-5%

0%

5%

10%

15%

20%

25%

IL IA IN WI

Percent Change in Beer Taxes RevenuesIL, IA, IN, WI 2008-2010

Impact on the Poor

Tobacco & Poverty

Source: NCI & WHO 2016


Impact on the Poor

• Concerns about the regressivity of higher

alcohol & tobacco taxes, food/beverage taxes

• Most excise taxes are regressive, but tax increases can

be progressive

• Greater price sensitivity of poor – relatively large

reductions in use among lowest income populations,

small reductions among higher income populations

• Health benefits that result from tax increase are

progressive


Who Pays& Who BenefitsTurkey, 25% Tax Increase

Source: Adapted from Önder & Yürekli, 2014

-35.3%

-20.4%

-18.5%

-2.2%

8.5% 9.7%

-36%

-31%

-26%

-21%

-16%

-11%

-6%

-1%

4%

9%

Change in Consumption Change in Taxes Paid

Source: World Bank, Fuchs et al., 2017

Progressivity of Tobacco Tax IncreaseChile

@tobacconomics

Impact on the Poor

– Need to consider overall fiscal system

• Key issue with taxes is what’s done with the revenues

generated by the tax

• Greater public support for tax increases when

revenues are used for prevention & control programs

and/or other health programs

• Net financial impact on low income households can be

positive when taxes are used to support programs

targeting the poor

• Concerns about regressivity offset by use of revenues

for programs directed to poor

@tobacconomics

Philippines ‘Sin Tax’ Reform

Source: Paul, 2016www.tobacconomics.org

Impact on the Economy

Industries argue that production and

consumption of their products makes a

significant economic contribution

• employment in farming, manufacturing,

distribution, retailing, and related sectors

• multiplier effects as income earned in these jobs

is spent on other goods & services

Excise Taxes and Jobs


Excise Taxes and Jobs

Industry-sponsored studies tell only part of story:

• Focus on the gross impact:

• New tax or tax increase will lead to decreased consumption

of taxed product

• Results in loss of some jobs dependent on production of

taxed product

• Ignore the net impact:

• Money not spent on taxed product will be spent on other

goods and services

• New/increased tax revenues spent by government

• Offsetting job gains in other sectors

@tobacconomics

Tobacco Taxes and Jobs

• Many published studies assess impact of

reductions in tobacco use from tax

increases and/or other tobacco control

measures:

• Variety of high, middle, and low income countries

• Use alternative methodologies

• Generally find that employment losses in

tobacco sector more than offset by gains in

other sectors


Tobacco Taxes and Jobs

Concerns about job losses in tobacco

sector have been addressed using new tax

revenues:

• Turkey, Philippines among countries that

have allocated tobacco tax revenues to

helping tobacco farmers and/or those

employed in tobacco manufacturing make

transition to other livelihoods

• Crop substitution programs, retraining programs

@tobacconomics

Thousands of employees, Mexico, 2007-2016; Guerrero-Lopez, et al., 2017

“We have strong evidence from around the world that raising taxes on products like

tobacco, sugar sweetened beverages and alcohol is highly effective at reducing harmful

consumption and saving lives. I’m grateful for the commitment of this impressive group of

leaders, whose expertise and experience will help the Task Force bring attention to the

enormous potential of fiscal policies for health.”

LARRY SUMMERS

“Noncommunicable diseases are a growing global crisis, especially in low-and-middle

income countries. There’s substantial evidence that taxes and fiscal policies are

essential to confronting this health threat. This Task Force will explore which policies

can make the biggest difference and help them spread, saving millions of lives.”

MIKE BLOOMBERG

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