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Possible effects of raising tobacco taxes across the EU

Increasing cigarette prices through taxation could reduce cigarette consumption and smoking related deaths across EU countries. This is according to a study published today in BMC Public Health which modelled a 10% tax increase on tobacco. Here to tell us about the model, how different EU countries would be affected, and the potential policy implications is Christian Schafferer, author of the article.

Christian Schafferer 21 Sep 2017

In the European Union (EU), approximately 700,000 people die of smoking-related diseases every year. The reduction of tobacco consumption has thus become one of the major social policies of the EU.

The tobacco control policies (MPOWER) proposed by the World Health Organization (WHO) in 2008 serve as a guideline for the health authorities of the EU member states. The six MPOWER measures mandate (i) increases in the tobacco tax; (ii) monitoring of tobacco usage; (iii) support for quitters; (iv) creation of a smoking-free environment; (v) warning against the dangers of tobacco; (vi) and banning tobacco advertising, promotion and sponsorship.

Numerous empirical studies have demonstrated that most consumers, when confronted with higher retail prices, indeed reduce consumption.

Among the MPOWER measures, taxation is the most common single policy tool to control tobacco use. Economic theory suggests that increasing tobacco taxes will result in higher direct costs for smokers and thus lower consumption.

Theoretically, the tobacco industry could absorb the additional costs to prevent higher retail prices, but, in reality, increased costs are passed on to the consumers.

Numerous empirical studies have demonstrated that most consumers, when confronted with higher retail prices, indeed reduce consumption, while others switch to lower-priced products or turn to smuggled goods.

Modeling a 10% tax increase

In our study, we estimated the effects of a hypothetical cigarette price increase of 10% on consumption, tax revenues and death toll of smoking in 28 EU countries.

Unlike previous studies, our statistical model also accounted for the fact that income affects the responsiveness of consumers to price changes. Research has shown that smokers with high disposable income are less affected by rising cigarette prices than those with lower income. In other words, the price elasticity of demand changes with income (income threshold effect).

The price elasticity of demand is used to measure changes in demand of goods in response to changes in price. It gives the percentage change in quantity demanded in response to a one percent change in price.

Our statistical model separates the observed 28 countries into three income clusters (regimes), assuming that all of the countries within a cluster have about the same response patterns to price increases. Using data for the years 2005 to 2014, our model estimated the price elasticity of each income cluster.

Nicotine use would be reduced by 12.27% in Bulgaria and Romania; by 8.29% in Latvia and Poland; and by 5.03% in the EU24 countries.

Based on the elasticity figures, we were able to estimate the possible effects of a hypothetical price increase of 10% on consumption, tax revenues and the number of averted smoking-attributable deaths. The latter figure derived from the simulated impact of price increments on the reduction in smokers and was adjusted for the fact that smoking cessation still carries considerable risks of early death.

The results of our study revealed that higher taxation would be considerably more effective in reducing consumption as well as incidences of smoking-related deaths in the two less developed regimes than in the remaining 24 countries (EU24) belonging to the third income regime. Specifically, nicotine use would be reduced by 12.27% in Bulgaria and Romania; by 8.29% in Latvia and Poland; and by 5.03% in the EU24 countries.

Unlike other measures, such as bans on tobacco advertising, taxation not only effectively decreases tobacco consumption but, in general, also has the beneficial side effect of increasing national tax revenues. Our simulation showed that although tax revenues increased by 7.03% in Latvia and Poland, and by 3.15% in the EU24 area, revenues dropped by 1.41% in the least developed countries, Bulgaria and Romania.

Different policies for different countries

What are the policy implications? As the results of the study show, there are three income regimes among the observed 28 European countries. Since each regime is differently affected by cigarette taxation, different policies must be adopted to fight nicotine use. Specifically, other measures to control tobacco use, such as restrictions on advertisements, pictorial warning labels and cessation assistance, are necessary in high-income countries to compensate for the income threshold effect.

Moreover, as the study has shown, higher taxation leads to significant increases in tax revenues in high-income regimes, but in poorer countries it is more likely to lead to considerable losses in tax revenues. Health authorities in less developed countries may thus lack crucial funding to implement anti-smoking measures. External funding (donations from other European countries) would thus be required to ensure success in combating cigarette use.

Illicit trade of tobacco products has not been included in the study, as reliable data could not be obtained for all countries. Moreover, data on cigarette consumption analysed in this study refer to factory-made (FM) cigarettes. Roll-your-own (RYO) tobacco products have become popular in the EU in recent years and may influence consumption behavior. Further research on price effects may thus address the issue of illicit trade and RYO cigarette use.

The effects of a rise in cigarette price on cigarette consumption, tobacco taxation revenues, and of smoking-related deaths in 28 EU countries

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Cigarettes to increase by AUD $2.70 a pack

SORRY, smokers.

http://www.news.com.au/finance/money/costs/cigarettes-to-increase-by-270-a-pack/news-story/cc94b9d54eb6d81f94df34808ed8243b

It’s the 1st of September, which means the government is jacking up the price of tobacco to feed its filthy spending habit.

From today, tobacco excise on cigarettes will rise by 13 per cent, from AUD 62 cents to AUD 70 cents per stick, while excise on other tobacco products will rise 17 per cent from AUD $771.60 to AUD $901.39 per kilogram.

That means a 30-pack of Winfield Blues, currently retailing for AUD $32.50, will rise to AUD $35.20 (HKD 219). “That’s a AUD $2.70 (HKD17) price hike that will make poor, addicted smokers worse off,” said Liberal Democrats Senator David Leyonhjelm, describing it as a “huge, cruel” tax rise.

The 13 per cent increase reflects the last six months of wages growth plus the twice-yearly 12.5 per cent tax increase, while the increase in excise on roll-your own includes these factors plus an additional 3 per cent to bring its taxation into line with cigarettes.

The roll-your own changes were announced in the May budget and will be phased in over four annual changes each September. The new measure is expected to claw back additional AUD $360 million in tax over four years, $35 million of which will be paid to the states and territories.

In 2016-17, the government raked in AUD $10.69 billion in tobacco excise.

“In addition, GST is imposed on both the cost of tobacco and the tobacco excise — a tax on a tax,” Senator Leyonhjelm said. “Tax will rise from 66 per cent of the price of cigarettes to 69 per cent. Tax paid by smokers is at least 17 times the cost that smokers impose on other taxpayers via the health system.

“The government bans the sale of e cigarettes that contain nicotine, even though these are 95 per cent less harmful than cigarettes. The extortionate taxation of tobacco, combined with the ban on e-cigarettes and plain packaging rules, have generated a booming black market in untaxed, unregulated tobacco run by organised crime. This supports the pushing of drugs and illegal guns.”

In 2014, the Liberal Democrats confirmed the party had received “tens of thousands” of dollars from tobacco giant Philip Morris in the lead-up to the 2013 election, but Senator Leyonhjelm denied the donation influenced his vocal opposition to plain packaging.

“The Liberal Democrats have been around for about 20 years, and freedom of smokers’ rights was the first issue, and the party only got its first donation [from Philip Morris] last year,” he told The Guardian. “So it’s not like anyone’s mind was changed or anything.”

According to the Cancer Council, tobacco smoking remains the leading preventable cause of death in the country, claiming the lives of 15,500 Australians every year.

Smokers usually pay 45-50 per cent more on their monthly life insurance premiums, according to analysis by comparison website Finder.com.au. A 35-year-old male smoker will pay $80 per month for an $800,000 life insurance policy, compared to a non-smoker who will only pay $40 for the same policy.

“A smoker’s dirty habit can really add up over the course of the year, and it’s just become even more expensive so now would be a great time to quit and potentially save yourself over $10,000 a year,” Finder.com.au spokeswoman Bessie Hassan said.

“It’s not just the price of a packet of cigarettes but also more expensive insurance premiums, and the cost to your health over time that all add up. It’s important to note that insurers usually require you to have given up smoking for at least 12 months before they classify you as a non-smoker, so start today.”

Taxation: Most effective but still the least-used tobacco control measure

source: Infographic: Stop Smoking: It's Deadly and Bad for the Economy

source: Infographic: Stop Smoking: It’s Deadly and Bad for the Economy

A new report by the World Health Organization (WHO) shares some good news: Six in 10 people worldwide are now protected by at least one of the WHO Framework Convention on Tobacco Control (FCTC)-recommended demand reduction measures, including taxation. The report, launched on the sidelines of the UN high-level political forum on sustainable development, also makes clear that raising taxes to increase tobacco product prices is the most cost-effective means to reduce tobacco use and prevent initiation among the youth. But it is still one of the least used tobacco control measures.

https://blogs.worldbank.org/health/taxation-most-effective-still-least-used-tobacco-control-measure

The facts about this global public health scourge are undisputable:

  • Tobacco use is the leading single preventable cause of death worldwide, killing over 7 million people each year.
  • Cigarettes are addictive by design, and smoking cigarettes can damage every part of the body, causing different cancers from the head or neck to the lungs and cervix and other chronic conditions such as stroke and heart disease, which lead to early death.
  • The direct and indirect economic costs are also enormous, totaling more than US$1.4 trillion.
  • Controlling tobacco use is critical for the achievement of the health and social and economic targets in the 2030 Agenda for Sustainable Development.

But we know what needs to be done and governments are acting. Governments are implementing “MPOWER”, six tobacco control measures in line with the WHO Framework Convention on Tobacco Control (FCTC). MPOWER includes:

  • Monitoring tobacco use and prevention policies;
  • Protecting people from tobacco smoke;
  • Offering help to quit tobacco use;
  • Warning about the dangers of tobacco;
  • Enforcing bans on tobacco advertising, promotion and sponsorship; and
  • Raising tobacco taxes.

The WHO report indicates that 43% of the world’s population (3.2 billion people) are now covered by two or more MPOWER measures at the highest level, nearly seven times the number covered in 2007. Eight countries, including five low- and middle-income ones, have implemented four or more MPOWER measures at the highest level: Brazil, Islamic Republic of Iran, Ireland, Madagascar, Malta, Panama, Turkey, and the United Kingdom of Great Britain and Northern Ireland.

Some additional findings are noteworthy:

  • Monitoring: Several countries, such as Nepal, India, and the Philippines, that conducted WHO-backed initiatives to monitor tobacco use have used the information to adopt measures to protect people from tobacco use. For example, Philippines’ landmark Sin Tax Reform Law was passed in 2012 after its 2009 global adult tobacco survey showed high smoking rates among men (47.4%) and boys (12.9%). The implementation of this policy measure has contributed to declining tobacco use as evidenced by the country’s 2015 adult tobacco survey results.
  • Protect: Comprehensive smoke-free legislation is currently in place for almost 1.5 billion people in 55 countries. Dramatic progress has been witnessed in low- and middle-income countries, 35 of which have adopted these laws since 2007.
  • Offer: Appropriate cessation treatment is in place for 2.4 billion people in 26 countries.
  • Warn: More people are protected by strong graphic pack warnings than by any other MPOWER measure, covering almost 3.5 billion people in 78 countries – almost half (47%) the global population. And, 3.2 billion people live in a country that aired at least one comprehensive national anti-tobacco mass media campaign in the last two years.
  • Enforce: Bans on tobacco advertising, promotion, and sponsorship interfere with the tobacco industry’s ability to promote and sell its deadly products and reduce tobacco use. But only 15% of the world’s population is currently covered by a comprehensive ban.
  • Raise: Raising taxes to increase tobacco product prices is the most cost-effective measure to reduce tobacco use and encourage users to quit, but it is one of the least used tobacco control measures globally.

What the World Bank Group is doing

As an institution, the Bank has long been committed to tobacco control as reflected in its unambiguous Operational Directive 4.76 of 1999 that mandates that the World Bank Group does not lend directly or provide credits, grants, or guarantees for tobacco production, processing, or marketing. The Bank’s policy advice and technical assistance support tobacco tax increases to protect the population from health risks and to mobilize additional domestic resources.

Over the past two decades, Bank teams have carried out substantial analytical work to build the global knowledge base on issues related to tobacco control.

In recent years, the Bank, in partnership with the Gates and Bloomberg Foundations, and in coordination with WHO, has supported countries in the design of tobacco tax policy reforms to raise prices, reduce consumption, and mobilize domestic resources in accordance with the 2015 Financing for Development Addis Ababa Action Agenda.

In addition to support provided to the reforms in Philippines in 2012, in Botswana in 2013, in Ghana in 2014, and in Peru in 2015, the Bank’s assistance to Armenia, Colombia, Moldova, and Ukraine contributed to the adoption of significant tobacco tax increases in 2016. The total population covered by these policy actions is about 250 million people.

Ongoing support is being provided in 2017 to an additional set of countries across regions, including Montenegro, where the government recently announced that tobacco taxes will be increased over the next 3 years in line with the European Union Tobacco Tax Directive’s target rates, and in Lesotho, as part of the 2017 budget presented by the new government to Parliament.

In moving the global tobacco control agenda forward, as the findings of the 2017 WHO report suggest, a dedicated focus by governments with support of the international community is required to raise tobacco taxes since it continues to be the least used tobacco control measure. This is of critical importance to make these deadly products unaffordable, reduce consumption among current smokers, and prevent smoking initiation among children and youth.

While health is the main objective, we also need to argue, on the basis of country evidence from across the world, that raising tobacco taxes can generate a significant fiscal benefit by helping to expand a country’s tax base and increase the budgetary capacity of governments to fund priority investments and programs that benefit the entire population.

Big Tobacco Accused of ‘Dirty War’ Against Smoking Prevention in Africa

In the past, Big Tobacco has been accused of covering up the true extent of the health risks associated with smoking, as well as fighting government restrictions. Now, a new investigation suggests that Big Tobacco is using strong-arm tactics to resist regulations in many parts of Africa.

http://www.care2.com/causes/big-tobacco-accused-of-dirty-war-against-smoking-prevention-in-africa.html

The Guardian reports that after reviewing court documents and other materials, it has uncovered a systematic wave of bullying and intimidation by British American Tobacco. And BAT is soon to close a deal that would make it the world’s leading tobacco company.

The exposé highlights attempts made by BAT to defang, or resist outright, regulation and restriction. For example, the company used threats of economic damage to fight higher taxes on cigarettes, a plan that is standard in the U.S. and much of Europe.

The Guardian reports:

In one undisclosed court document in Kenya, seen by the Guardian, BAT’s lawyers demand the country’s high court “quash in its entirety” a package of anti-smoking regulations and rails against what it calls a “capricious” tax plan. The case is now before the supreme court after BAT Kenya lost in the high court and the appeal court. A ruling is expected as early as next month.

The Guardian has also seen letters, including three by BAT, sent to the governments of Uganda, Namibia, Togo, Gabon, Democratic Republic of Congo, Ethiopia and Burkina Faso revealing the intimidatory tactics that tobacco companies are using, accusing governments of breaching their own laws and international trade agreements and warning of damage to the economy.

But we have seen these tactics before.

Starting as early as the 1970s, health warnings about cigarettes began to grab national attention. At that time, tobacco companies used every advertising and legal mechanism they could to prevent further regulation and to avoid plain packaging. As a result, some 70 years after the health dangers of cigarettes came to light, we are only now restricting tobacco in a way that seems appropriate to its risks.

While tobacco companies are in retreat in the West, African, Latin American and now Asian markets have become key areas of interest. As well as exploiting labor in these regions, tobacco companies now want to ensure that their products last long after the West has rejected cigarettes.

For its part, British American Tobacco has always claimed to abide by strict codes of conduct. The company has defended its use of the courts as a means to clear up ambiguous interpretations in local regulation and to ensure international regulations are being followed where appropriate.

British American Tobacco maintains that it does not oppose regulation per se and believes that reasonable restrictions on tobacco are warranted as, tobacco is a harmful product.

However, campaigners have long said that BAT falls short of that standard. Many African nations have signed on to the World Health Organization’s treaty on tobacco control, but that status still needs to be ratified, meaning that no uniform policies exist. Sub-Saharan Africa in particular has shown its vulnerability to manipulation by outside businesses with money.

The Guardian exposé highlights this clearly in one extract regarding tobacco regulation in Kenya:

Extract – letter
“If these measures are brought into effect, the economic and social impact will be extremely negative. They could even threaten the continuation of our factory which has operated in Bobo Dioulasso for more than fifty years with more than 210 salaried employees.”

Excerpt from letter from Imperial Tobacco to the prime minister of Burkina Faso, 25 January 2016, concerning new regulations on plain cigarette packaging and large graphic health warnings.

The Sunday Times has previously reported on an investigation which found that BAT sold cheaper, highly addictive cigarettes to Africans in the 1990s. The company also allegedly marketed smoking without sufficient health warnings.

BAT may dispute such claims or suggest that these are simply past infractions. However, more recent reports claim that people affiliated with BAT have attempted to bribe African officials to advance tobacco products in sub-Saharan Africa and to avoid certain regulations.

As of 2016, these allegations — made both by former BAT employees and by outside investigators — even prompted lawmakers in the U.S. Congress to call for a full investigation to determine whether BAT breached any laws due to its involvement in Africa.

Overall, tobacco use remains low across Africa. A major “Lancet” study published in 2010 puts cigarette smokers at about 14 percent of the total population — far below that seen in the Americas. However, data suggests that the rate of smoking uptake is rising at an alarming rate — by as much as four percent per year.

Will the Guardian’s revelations prompt further action against British American Tobacco? That remains to be seen, but we must do everything we can to help African nations get the full facts on tobacco’s health impacts and resist Big Tobacco’s strong-arm tactics.

Nations that cannot fight tobacco industry should raise taxes, says WHO

World Health Organization says many governments have neither funds nor expertise to take on big tobacco companies

https://www.theguardian.com/world/2017/jul/12/nations-that-cannot-fight-tobacco-industry-should-raise-taxes-says-who

African nations whose attempts to regulate cigarettes are increasingly bogged down in the courts by wealthy tobacco companies should impose high taxes to deter people from developing a smoking habit, the World Health Organization says.

Vinayak Prasad of WHO’s Tobacco Free Initiative said many African governments were at a disadvantage in the fight against the industry over regulatory controls, like graphic health warnings on packs, which are the norm in the west. They have neither the funds nor enough expertise to deal with the big tobacco companies’ threats, intimidatory letters and law suits.

His comments follow the exposure by the Guardian of the attempts by multinational tobacco companies to delay and dilute regulatory controls in Africa through litigation and threats. At least eight African governments have been pressured by the industry.

“Just focus on getting the tax raised,” urged Prasad. WHO, the World Bank and others were trying to encourage and assist countries in changing their tobacco taxation, which countries from the Philippines to India had demonstrated could raise millions of dollars for healthcare or other essential government spending.

Developing nations do not have enough money or staff devoted to public health, he said. Often those in government who lead on tobacco control are also the key players for other areas, such as mental health.

“The tobacco epidemic has already reached the African continent. Countries have started to prioritise it but inherently the systems are weak. They need to build human resource capacity and technical capacity to respond to industry threats,” he told the Guardian. “We are working extremely hard [to help them] but we need to do more.”

Reacting to the Guardian’s reports, former public health minister Caroline Flint said: “It is sad to see firms like BAT fighting African governments for years over health warnings on cigarette packages and modest taxes. In any western nation they would have conceded these issues years ago. It speaks volumes about their approach to Africa that the tobacco giants appear willing to fight on all fronts to protect their sales.”

Lord Rennard, the vice chair of the all-party parliamentary group on smoking and health, said a tax on the profits of firms “could provide funds for legal support to governments in poorer countries seeking to resist tobacco damaging the health of their local populations”.

The tobacco industry also vigorously opposes hikes in the taxation of cigarettes, which is proven to reduce the numbers who smoke. The companies and tax advisers who intervene on their behalf with governments claim that tax hikes lead to smuggling from countries where the prices are lower. Prasad says that is not so if taxation is simplified, so that the same sum is levied on every carton regardless of brand.

Deborah Arnott, chief executive of campaigning group Ash, said the revelations showed that the industry had not turned over a new leaf, focusing on vaping and aiming for a smoke-free future, as it claims. “The Guardian has thrown a spotlight on the dirty truth, the leopard hasn’t changed its spots, it’s still promoting the same old lethal products the same way it always did, in countries where it can get away with it,” she said.

“Last century 100 million people died from smoking; if Big Tobacco isn’t stopped then this century a billion will be killed by their lethal products and most of them will be from low and middle income countries. The tactics being used in Africa of denial, deception and delay were used very successfully in the UK in the last century, but they’re no longer being allowed to get away with it here and smoking rates have plummeted as a result. Africa needs to learn from our experience, if you regulate the industry strictly the smoking epidemic can be halted and reversed.”

Dr Tom Frieden, former director of the Centers for Disease Control and Prevention in the US, said in a tweet that the revelations showed the “outrageous and shameful activities of tobacco industry in Africa”. US senator Richard Blumenthal, who spent his career promoting anti-smoking legislation, and was one of 46 state attorneys general to secure hundreds of billions of dollars in damages from tobacco companies in a 1990s settlement, said that in developing markets “tobacco companies have actively resisted” health regulation. “They have actively intervened with governments, and particularly so in Africa.”

José Luis Castro, president and chief executive officer of Vital Strategies, an organisation that promotes public health in developing countries, said: “The danger of tobacco is not an old story; it is the present. The industry is using every tool at its disposal to hook new smokers, especially kids, in Africa and other parts of the world.” There is a huge gap between what the industry says and what it does, he said. “It’s time this sham was called out in every country and in every public forum. When the tobacco industry gets near government, it poisons efforts to protect health.”

The multinational companies say they do not oppose tobacco regulation that is sound and evidence-based. “However, where there are different interpretations of whether regulations comply with the law, we think it is entirely reasonable to ask the courts to assist in resolving it,” British American Tobacco told the Guardian.

Imperial Tobacco also said it supported regulation, but it would “continue to make our views known on excessive, unnecessary and often counter-productive regulatory proposals”.

Philip Morris International said it has contact with public authorities on a range of issues, “such as taxation, international trade, and tobacco control policies. Participating in discussions and sharing points of view is a basic principle of public policy making and does not stop governments from taking decisions and enacting the laws they deem best”.

This content is funded, in part, by Vital Strategies.

How big tobacco has survived death and taxes

The world’s five major tobacco companies are thriving, profitable and increasing sales, despite many predictions of the industry’s decline

https://www.theguardian.com/world/2017/jul/11/how-big-tobacco-has-survived-death-and-taxes

A casual observer could be forgiven for believing that the tobacco industry – for so long a fixture as permanent as its two main by-products, death and taxes – is itself on its last legs.

In the US, health officials have predicted that smoking rates in America could drop to as low as 5% by 2050, well within the lifetime of someone born today.

Last year, shareholders of UK-based Imperial Tobacco approved a decision to change the company’s century-old name to Imperial Brands, hinting at a move away from traditional cigarettes.

Even globe-straddling colossus Philip Morris International (PMI), owner of brands including Marlboro, has set its stall out for a “smoke-free” future, where nicotine addicts get their fix from vaping and other non-tobacco products.

Yet, for all of these predictions, one thing has remained unchanged: Big Tobacco is thriving, profitable and increasing its sales.

Excluding China, where the market is monopolised by the state, five major companies dominate the global tobacco trade – Philip Morris International (PMI), British American Tobacco, Japan Tobacco, Imperial Brands and Altria (the former US assets of PMI).

Between them in 2016, they shipped 2.27tn cigarettes, more than 300 for every man, woman and child on the planet, racking up combined sales of $150bn (£115bn). Their combined profits reached $35bn (£27bn), allowing investors in those companies to receive dividends of $19bn (£14.5bn).

Of these giants, one of the most powerful is British American Tobacco (BAT), the London-based firm that can trace its history back to 1902.

Run from Globe House, its headquarters next to the Thames river, BAT sells its brands in 200 countries and is market leader in 55 of them.

Far from looking to a future beyond tobacco, BAT is doing perfectly well as it stands.

At its annual meeting in March, chairman Richard Burrows toasted a “vintage year”, as profits rose to £5.2bn ($6.7bn) allowing the company’s shareholders to take a dividend worth an additional 10%.

The rewards were so great because BAT’s sales show no signs of the industry’s much-vaunted decline. The company sold 665bn cigarettes in 2016, nearly 100 for every human on earth and 2bn more than it sold the year before.

Cigarette sales among its so-called Global Drive Brands – Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans – jumped 7% to 346bn.

In the section of its accounts that details non-cigarette sales, which the company terms “next generation products”, there is nothing to see.

The numbers are so small that they are considered immaterial to its financial results and do not need to be disclosed under stock market rules.

Yet the company’s traditional business continues to generate big headlines and bigger numbers. By the end of the year, BAT is likely to have completed a landmark $49bn deal to buy the 57.8% of US tobacco giant Reynolds American that it does not already own. A simultaneous shareholder vote next Wednesday by both firms is expected to agree the deal at Reynolds HQ in Winston-Salem, North Carolina, and BAT in London.

If US tobacco sales really are set to fall off a cliff, that would be a monumental strategic misstep.

But while the percentage of Americans who smoke is on the wane, the US remains a market with huge potential.

That’s because the population is rising, meaning that even as smoking rates decline in percentage terms, the actual number of smokers is relatively static at about 45 million people.

US cigarettes are also relatively cheap compared with prices in the UK, leaving some scope for the company to raise prices without losing customers.

Reynolds and BAT will also look to the future by pooling research on smokeless products, hoping to capture that growing market, though that won’t be the big money-spinner any time soon.

And then there is the developing world, where the rate at which governments and public opinion are turning against tobacco differ dramatically from wealthier economies.

tob-increases

A ‘defensive’ stock

BAT increased its revenues in every region bar Asia-Pacific last year, with the developing world doing more than its share of the heavy lifting.

Among the “key markets” listed in its annual report are Indonesia and Egypt – and for good reason.

The World Health Organisation projects smoking rates in Indonesia to increase by 2025, with the number of smokers growing from 73m to 97m based on current trends.

Egypt is another key market where smoking rates are projected to grow, with up to 21m Egyptians forecast to be smokers by 2025, compared to 14m in 2015.

One only has to look at BAT’s roster of investors for evidence of the confidence that well-informed institutions with deep pockets have in the future of cigarettes, even if that future is less bright in the West.

tob-deaths

It’s a list that features nearly every major investment company in the world, testament to the safe bet that tobacco giants such as BAT offer to investors.

Top of the share register is BlackRock, the all-powerful asset manager that has a stake in nearly every major listed company in the world, managing investors’ funds of approximately $5.4tn, more than the economy of Japan.

Some way further down the list is Woodford Investment Management, run by Neil Woodford, a figure held in awe in London for his uncanny ability to make money.

He famously invests a huge chunk of his portfolio in tobacco, explaining that he is not paid to make moral judgments but to make money for clients.

Tobacco is attractive to investors – including councils in the UK – because it is seen as a “defensive” stock, in other words a good place to invest money that you are not prepared to lose.

The shares rarely decline in value even when times are tough and also deliver a steady income from annual dividends.

The huge rewards on offer for investors mean that those who manage the great behemoths of tobacco are also handsomely rewarded.

BAT chief executive Nicandro Durante is no exception. He was handed a package of cash and shares worth $10m (£7.6m) last year, taking his earnings over six years to a cool $44m (£34m).

When fellow directors are included, the 14-strong BAT boardroom enjoyed a combined $18m (£14m) payday in 2016.

There are other perks. Durante gets free tax advice from the company, a personal driver and security for his homes, in London and Brazil.

Both executives and non-executives also have access to a walk-in GP clinic near BAT’s headquarters at Globe House in London, enjoying the benefits of a National Health Service that has been estimated to spend up to $6.5bn (£5bn) a year on smoking-related illnesses.

BAT’s board earn their corn as much for their network of connections as they do for their hard work.

Burrows is a former governor of Bank of Ireland, while senior independent director Kieran Poynter is a managing partner of Big Four accountancy PricewaterhouseCoopers and previously advised the UK’s Treasury.

Its non-executive directors boast a string of similar appointments at multinational companies. Savio Kwan, for instance, was chief operating officer of China’s largest internet business, Alibaba.

tob-deaths-tot

Ann Godbehere ran the finances of Northern Rock after its bailout and also serves on the boards of mining giant Rio Tinto, Swiss bank UBS and insurer Prudential.

Nor does the company’s network of influence end there.

While it does not donate money directly to British political parties, it does funnel cash to influential right-leaning thinktank the Institute of Economic Affairs.

BAT gives the IEA around $52,000 (£40,000) a year, a sum equivalent to about 5% what the organisation pays its staff, some of whom appear frequently in the media to criticise tobacco control legislation such as plain packaging.

Chief among those staff is director-general Mark Littlewood, a former press spokesman for the Liberal Democrats and one-time adviser to David Cameron.

Littlewood has been a vocal critic of tobacco control legislation such as the ban on smoking in pubs, as well as plain packaging.

The IEA has also received funding from Philip Morris International and Japan Tobacco International.

The BAT bosses

Nicandro Durante – chief executive

Nicandro Durante joined Brazilian subsidiary Souza Cruz in 1981, and rose through the ranks over three decades until he was appointed chief executive in 2011.

He had impressed the company’s senior management during a two-year stint as regional director for Africa and the Middle East, key areas of future growth for tobacco companies facing up to declining smoking rates in more developed economies.

Born to Italian parents in 1956 in Sao Paulo, he played football for the city’s Corinthians team in his teens before going into business.

Married with two children, Durante stopped smoking cigarettes in favour of cigars, but has no qualms about tobacco, which he described as a “very ethical” industry in a 2012 interview with the Financial Times.

In 2015, he fielded allegations from a former employee in Kenya that BAT bribed officials for various purposes, including the undermining of tobacco control laws.

BAT denies any wrongdoing. A spokesperson said: “We will not tolerate improper conduct in our business anywhere in the world and take any allegations of misconduct extremely seriously. We are investigating, through external legal advisors, allegations of misconduct and are liaising with the Serious Fraud Office and other relevant authorities.”

In 2016, Durante was handed a package of cash and shares worth $10m (£7.6m), taking his earnings over the past six years to a cool ($44m) £34m.

Richard Burrows – chairman

Addressing BAT’s shareholders earlier in 2017, Burrows toasted a “vintage year”, in which the company shrugged off bribery allegations in late 2015 to record rising profits.

Some investors were less keen on Burrows when he was named chairman in 2009.

Burrows had resigned as governor of Bank of Ireland, leaving the lender in dire straits, with big losses and mounting debt threatening its very survival.

Tens of thousands of the bank’s mortgage customers were plunged into negative equity and the lender eventually needed a state bailout that enraged many Irish people.

As the bosses of rival lenders faced public opprobrium for their stewardship of the country’s banking sector, Burrows got out just in time, landing the chairmanship of BAT in 2010.

But BAT wasn’t concerned by his record in banking, looking instead to his 22 years with Irish Distillers, during which time he was credited with turning Jameson whiskey into an internationally-recognised brand.

The Dubliner, 71, is a non-smoker who is married with four children and enjoys sailing and rugby.

He is also chairman of investment company Craven House Capital, whose assets includes beachfront land in Brazil. He is a non-executive director of Rentokil and Carlsberg.

Kieran Poynter – senior independent director

After a near 40-year career with global accounting giant PwC, which put him among the ranks of the UK’s best-paid accountants, Kieran Poynter joined BAT’s board as senior independent director.

He brought with him valuable connections, having served as an adviser to former UK chancellor of the exchequer Alistair Darling.

Poynter, a Chelsea FC season ticket holder, is a former director of the salubrious Royal Automobile Club, the gentleman’s club on London’s Pall Mall.

He also sits on the board of F&C Asset Management and IAG, the parent company of British Airways.

Ben Stevens – finance director

Ben Stevens looks after BAT’s money, and has spoken about how the company is growing market share and looking for acquisitions in Asia and North Africa.

Part of his role is trying to convince governments not to raise excise duty on cigarettes too quickly, according to an interview he gave with financialdirector.co.uk.

In the same interview, he referred to the need to have a “thick skin” because of the number of people “bashing tobacco companies”.

Stevens gave up smoking nearly 30 years ago, two years before joining the company. But said in 2013 that profits would come from “combustible tobacco” for the near future.

Proposal to tax heat sticks the same as cigarettes

A proposal to tax heat-not-burn tobacco products at the same rate as combustible cigarettes is before the National Assembly, the Korea Herald reported.

http://www.tobaccojournal.com/Proposal_to_tax_heat_sticks_the_same_as_cigarettes.54292.0.html

Legislation to revise three laws governing taxation of tobacco products reportedly has been introduced by Rep Kim Kwang-lim, a member of the Liberty Korea Party. All tobacco products are harmful and should be taxed at the same rate, according to the legislation. Heat-not-burn products are taxed at about half the KRW 3,323 (EUR 2.59) rate for combustible cigarettes, the Herald said.

High cigarette prices can really make you quit smoking

WHO says increased taxation on tobacco is least expensive and most effective tool in reducing smoking worldwide.

http://www.aljazeera.com/indepth/interactive/2017/05/high-cigarette-prices-quit-smoking-170525092939544.html

Tobacco remains one of the major risk factors for a number of chronic diseases, including cancer, lung and cardiovascular diseases. The World Health Organization (WHO) estimates that tobacco is responsible for the death of around seven million people across the globe every year.

Over the last two decades, there has been a significant reduction in the percentage of people smoking every day across the world, but the WHO says a lot more needs to be done to deter people from smoking cigarettes.

In a bid to curb consumption, governments have been enforcing stricter regulations on tobacco products and their usage.

Several countries are increasingly implementing strategies to tighten their tobacco policies in the hopes of deterring smoking, especially among young people.

Raising taxes on tobacco products is seen to be one of the least expensive and the most effective tools in countering the influence of tobacco companies. But it is also the least implemented, with only 10 percent of the world’s population currently living in countries with sufficiently high taxes.

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A 2010 WHO report found that 78 percent of those aged 15 years and over in the WHO member states were non-smokers.

By 2025, the number of non-smokers is expected to rise to around 5 billion out of a projected 6.1 billion people aged 15 and over.

Currently, nearly a third of all men are smokers, making the prevalence of smoking among men considerably higher than among women. Over the past 30 years, smoking among men has decreased by 10 percent.

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The price of a pack of cigarettes

Increasing prices and adding tax measures on tobacco products has been used to decrease the demand for cigarettes.

Many countries have successfully used tax policies to regulate the price of cigarette products. In Australia, a pack of cigarettes can cost up to $18, making it the most expensive country to buy cigarettes.

A report by the Australian Institute of Health and Welfare (AIHW) in 2016 found that the smoking rate in the country was at an all time low. In the last 20 years, smoking had decreased by almost 50 percent.

The study showed that less than 13 percent of Australians are daily smokers and fewer people are starting to smoke.

The report cites Australia as having one of the lowest smoking rates in the world, in part because of their implementation of increased taxes on tobacco products, plain packaging, and more restrictive smoke-free environment laws.

prices-cigs

Illicit trade in tobacco products

The tobacco industry and other interest groups argue that increased taxes on tobacco products allows an illicit black market trade in tobacco to thrive.

But the WHO says that high-income countries with taxes on tobacco products do not face widespread issues related to illicit trade, while low-income countries continue to do so, precisely because of weaker tobacco-control programmes and taxes. Nearly 80% of the world’s smokers live in low to middle-income countries.

cig-consumption

High cigarette prices can really make you quit smoking

WHO says increased taxation on tobacco is least expensive and most effective tool in reducing smoking worldwide.

http://www.aljazeera.com/indepth/interactive/2017/05/high-cigarette-prices-quit-smoking-170525092939544.html

Tobacco remains one of the major risk factors for a number of chronic diseases, including cancer, lung and cardiovascular diseases. The World Health Organization (WHO) estimates that tobacco is responsible for the death of around seven million people across the globe every year.

Over the last two decades, there has been a significant reduction in the percentage of people smoking every day across the world, but the WHO says a lot more needs to be done to deter people from smoking cigarettes.

In a bid to curb consumption, governments have been enforcing stricter regulations on tobacco products and their usage.

Several countries are increasingly implementing strategies to tighten their tobacco policies in the hopes of deterring smoking, especially among young people.

Raising taxes on tobacco products is seen to be one of the least expensive and the most effective tools in countering the influence of tobacco companies. But it is also the least implemented, with only 10 percent of the world’s population currently living in countries with sufficiently high taxes.

A 2010 WHO report found that 78 percent of those aged 15 years and over in the WHO member states were non-smokers.

By 2025, the number of non-smokers is expected to rise to around 5 billion out of a projected 6.1 billion people aged 15 and over.

Currently, nearly a third of all men are smokers, making the prevalence of smoking among men considerably higher than among women. Over the past 30 years, smoking among men has decreased by 10 percent.

The price of a pack of cigarettes

Increasing prices and adding tax measures on tobacco products has been used to decrease the demand for cigarettes.

Many countries have successfully used tax policies to regulate the price of cigarette products. In Australia, a pack of cigarettes can cost up to $18, making it the most expensive country to buy cigarettes.

A report by the Australian Institute of Health and Welfare (AIHW) in 2016 found that the smoking rate in the country was at an all time low. In the last 20 years, smoking had decreased by almost 50 percent.

The study showed that less than 13 percent of Australians are daily smokers and fewer people are starting to smoke.

The report cites Australia as having one of the lowest smoking rates in the world, in part because of their implementation of increased taxes on tobacco products, plain packaging, and more restrictive smoke-free environment laws.

Illicit trade in tobacco products

The tobacco industry and other interest groups argue that increased taxes on tobacco products allows an illicit black market trade in tobacco to thrive.

But the WHO says that high-income countries with taxes on tobacco products do not face widespread issues related to illicit trade, while low-income countries continue to do so, precisely because of weaker tobacco-control programmes and taxes. Nearly 80% of the world’s smokers live in low to middle-income countries.