Tobacco Tax
A tax increase that’s proven to save lives
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https://theconversation.com/a-tax-increase-thats-proven-to-save-lives-87908
Jeffrey Drope currently receives funding from the US National Institutes of Health, the Institute for Global Tobacco Control at the Johns Hopkins Bloomberg School of Public Health, and the World Health Organization. He is Vice President, Economic and Health Policy Research at the American Cancer Society.
Otis W. Brawley reports no external funding. He is the Chief Medical Officer, American Cancer Society.
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Shao Fei lights a cigarette on a Beijing street in 2015 as a co-worker looks on. Shao said at the time that higher taxes on cigarettes would lead him to stop smoking.
Reuters/Kim Kyung-Hoon
Lung cancer remains the world’s largest cancer killer, but the world is not doing all it can to curb it.
Tobacco use is the largest risk factor for lung cancer. It is also a risk factor for at least 11 other cancers, and the reason that a mind-numbing 1.5 million tobacco-related cancer deaths occur every year worldwide.
This is much more than a health crisis. The global estimate of health costs and lost productivity from smoking-related illnesses was enormous in 2016, estimated at 1.8 percent of the world’s annual gross domestic product.
Without urgent action, scholars predict there will be a billion tobacco-related deaths this century. The costs of treating smoking-related diseases will become an increasingly significant economic burden in many low- and middle-income countries over the next 20 years.
Currently, these countries account for about 40 percent of the overall global costs of tobacco and a growing share of global smoking prevalence. Economic growth in these countries coupled with aggressive marketing by tobacco companies is making things worse. These dynamics represent a clear threat to health and development.
We spend our lives studying, teaching about and promoting cancer control, and we can report there are proven tools at our disposal that can help the world avoid this catastrophe. Arguably, the single most effective tool, both in terms of cost and population-level effects, is tobacco taxation.
Tax – one of public health’s best tools
A large body of evidence demonstrates that applying excise taxes on tobacco products on a sustained basis so that people cannot afford them is currently the most effective policy instrument to discourage smoking. Effective taxes deter people and especially youth from starting to use tobacco and encourage current tobacco users to cut down or quit.
In fact, raising cigarette excise tax in each country by one international dollar – an international dollar in a particular country has the same purchasing power as a U.S. dollar in the U.S. – per 20-cigarette pack would lead to a decrease in daily smoking prevalence from 14.1 percent to 12.9 percent and 66 million fewer smokers in one year.
This also translates into 15 million fewer smoking-related deaths among adults over time.
Most of the world’s governments have signed the World Health Organization Framework Convention on Tobacco Control, the world’s first public health treaty under the WHO’s auspices. Most use the WHO’s associated MPOWER framework to help them translate this commitment into effective, actionable public health policies. Both recommend that raising the price of tobacco through higher taxes is an essential tool to reduce tobacco use.
But the 2017 WHO Report on the Global Tobacco Epidemic revealed that tobacco taxation is the least well-implemented major tobacco control measure. Only 10 percent of the world’s population lives in countries where tobacco taxes are sufficiently high to have a preventive impact on tobacco use.
Raising taxes on tobacco would curb smoking, studies show. Reuters/Regis Duvignau
In many countries, the tobacco industry and its surrogates have been spreading inaccurate data and specious arguments to discourage governments from increasing tobacco taxes. The companies have, for example, overinflated the threat of illicit trade in tobacco products.
In reality, many of the countries with the highest tobacco taxes also have the lowest levels of illicit trade. Experience across many countries demonstrates that straightforward steps, such as programs that track and trace tobacco products and even modest law enforcement efforts to find and punish those trafficking in illicit trade, greatly mitigate any such challenges.
Success depends on support
As with many interventions, success depends upon visible and vocal support from a wide variety of actors, including health and political stakeholders. While some in the tobacco control community have advocated for tobacco taxation, many natural allies have remained relatively quiet.
Momentum is now growing and new coalitions are forming to promote tobacco taxation. For example, Prevent20 is a community of cancer organizations from around the world that supports and promotes the use of tobacco taxes as a key cancer prevention strategy. The coalition’s name reflects the grim statistic that 20 percent of all cancer deaths globally are caused by tobacco use.
In September, the Prevent20 Coalition signed an open letter to Dr. Tedros Adhanom Ghebreyesus, the new WHO director general, acknowledging and supporting his existing commitment to fighting the tobacco epidemic and encouraging him to redouble WHO efforts on global health and, specifically, on raising tobacco taxes.
It was particularly important for the health community to raise the issue of tobacco taxes while Dr. Tedros was attending the United Nations General Assembly meeting, where delegates debated and passed resolutions on issues including development, financing for development and health.
Under the Sustainable Development Goals, governments have committed to fully implement and enforce the WHO FCTC. They have also committed (in Target 3.4) to reduce premature mortality from noncommunicable diseases by one-third by 2030.
It is impossible to meet this target without serious reductions in tobacco use, a major risk factor for the four main noncommunicable diseases: cardiovascular disease, chronic respiratory disease and diabetes, as well as cancer.
WHO itself has called for a 30 percent relative reduction in adult smoking prevalence by 2025. If taxes were implemented adequately around the world to meet the target, governments could generate up to US$800 billion annually.
From a health and political perspective, there could be significant co-benefits – governments could reinvest revenue in priorities such as improving health systems as well as disease prevention and treatment. This would thereby deliver significant savings in future health care costs. Some countries already have turned tobacco taxes toward improving care, such as Costa Rica and the Philippines, where tobacco excise taxes are paying to extend health care to millions more people.
In global meetings, this potential for revenue generation has led governments to conclude that tobacco taxes should be leveraged as a domestic source of development financing – a strategy explicitly set out in the Addis Ababa Action Agenda. But politicians need to demonstrate the will to translate intent into action.
Cancer organizations are beginning to raise their voices to share accurate information about tobacco taxes and health, to debunk tobacco industry misinformation, encourage governments and their constituents to support higher tobacco taxes, and make it easier for governments to adopt and implement them.
Progress is not possible if we let the tobacco industry shape health policy, so the wider health and development community must join the cancer community in being visible and vocal advocates for high tobacco taxes.
Nearly Three Quarters of UK Smokers Avoid Paying Tobacco Duties
Major new survey reveals true impact of high Government taxes and new regulations
Government warned of risks of a second duty increase in under one year
The trade association for the UK tobacco industry is today publishing the results of the largest annual survey of 12,000 UK smokers that reveals the impact of the Government’s high tobacco taxes and shows the problem being made worse by new draconian regulations introduced this year including plain packaging.
Key findings:
– 72.5% or around 7 million smokers buy tobacco from sources where UK taxes won’t be paid including illicit tobacco and from abroad.
– 41% of smokers bought tobacco from illicit tobacco sources.
– Smokers on higher incomes (over £60,000) were as likely to buy illicit as those on low incomes (under £6,000).
– 48% of smokers who earned less than £6,000 bought tobacco from illicit sources.
– 40% of smokers who earned more than £60,000 bought tobacco from illicit sources.
– Smokers are stockpiling cheap or illicit tobacco with 53% of cigarette smokers buying 200 or more when they buy from sources that won’t have paid UK tax.
– 88% of smokers thought that tobacco prices are too high – just 2% thought that prices were too low.
– 57% of smokers said that rising prices tempt them to purchase tobacco that won’t have paid UK tax.
– Taxes on tobacco have increased by 65% since 2010 and by 5.9% at the 2017 spring Budget.
– 45% of smokers said that the ban on small tobacco packs and the introduction of mandatory plain packaging tempted them to purchase illegal tobacco. 31% said it did not tempt them.
– Analysis by Oxford Economics says that banning small tobacco packs will cost HM Treasury £2.1 billion in its first year.
– HM Treasury lost out on £3 billion from tobacco purchases which didn’t pay UK taxes in 2015-16.
– Only 12% of smokers who knew of illicit tobacco in their local area reported it to the authorities.
– This is a 40% fall compared to the 20% who reported it in 2016.
Tobacco on which UK taxes is not paid is a major issue for law enforcement and taxpayers. £3 billion of tax were lost to the illicit trade and cross border shopping in 2015-16, an amount that cannot be spent on important public services. The link between high tobacco taxes and the illicit market is acknowledged by many leading independent institutions including the Royal United Services Institute.
This survey of over 12,000 smokers supports these conclusions with the vast majority saying that tobacco prices are too high; government taxes account for up to 90% of the price of a pack of cigarettes.
The regulatory changes to the UK tobacco market this year – the ban on small packs and the introduction of plain packaging – might make the problem worse, with 45% of smokers saying they are more likely to purchase illicit tobacco because of the changes. Moreover, smokers are increasingly buying larger amounts of untaxed tobacco with 53% saying they buy 200 cigarettes or more from non-taxed sources.
In addition, government policies appear to have alienated smokers so they are not concerned when they know illegal tobacco is being sold in their local area. Just 12% of smokers who had seen illicit tobacco reported it (a 40% decrease on last year (20%) and 64% of those who did not say this is because it is ‘none of their business’ (a 7 percentage point increase on 2016). There is also growing evidence found by a recent Trading Standards report to suggest the children are increasingly accessing illicit tobacco given its widespread availability and affordability.
Overall this survey confirms that the Government’s policies do not have the support of smokers and are likely to be a large contributing factor to the high level of illegal tobacco in the UK.
Responding to this year’s findings, TMA Director General, Giles Roca, said:
“These results reveal the true extent of how the Government’s high tax policy, in creating some of the highest tobacco prices in Europe, has continued to push smokers to buy from non UK duty paid and illegal sources. High taxes have cost the Treasury billions of pounds in lost revenues whilst giving a boost to the criminals who are behind the illegal trade. There is also worrying evidence that children are increasingly accessing tobacco from these illicit sources.”
“The regulations that came fully into force this year banning small tobacco packs and introducing plain packaging are making the problem worse by pushing smokers towards the illicit market rather than encouraging them to quit.”
“There is a real risk that the problem could be made worse if the Government decides to increase tobacco duty for a second time in nine months in the upcoming Budget. These findings suggest the Government needs to completely re-think its tobacco taxation policy.”
ENDS
Notes to editors
1. The findings are drawn from a survey of 12,605 smokers from across the UK conducted in June 2017.
2. This is the fourth year that the TMA has polled smokers to find out their attitudes towards illicit tobacco.
3. £3 billion of tax from tobacco products was lost to the illicit trade (£2.4 billion) and cross border shopping £600 million) in 2015-16. HMRC, 2016, Measuring tax gaps, tobacco tax gap estimates 2015-16.
4. Oxford Economics estimated that the impact of the ban of packs of fewer than 20 cigarettes and hand rolling tobacco smaller than 30grams would be a reduction in tax revenue of £2.1 billion in its first year.
5. The Treasury raised tobacco duty at the budget in March 2017 by 2% above inflation. The autumn budget will take place on 22nd November 2017.
6. A survey undertaken by North West Trading Standards in 2015 found that 39% of children had purchased cigarettes with non-English health warnings.
7. The Tobacco Manufacturers’ Association (TMA) is the trade association for the UK’s tobacco industry. Our members are British American Tobacco UK Ltd, Gallaher Ltd (a member of the JTI Group of companies) and Imperial Tobacco Ltd.
8. Findings from previous year’s surveys can be found at http://www.the-tma.org.uk.
SOURCE The Tobacco Manufacturers’ Association (TMA
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.