October 4th, 2011:

http://thestar.com.my/news/story.asp?file=/2011/10/4/focus/9623523&sec=focus

FOR centuries, tobacco has been considered an ideal consumer good for taxation.

The World Bank report 1999 showed how increased taxation affected the demand for cigarettes and other tobacco products.

It was found that demand for tobacco, while inelastic, was still strongly affected by its price.

On average, a price rise of 10% a pack of cigarettes would be expected to reduce demand for cigarettes by about 4% in high-income countries and by about 8% in low and middle income countries (Jha & Chaloupka, 1999).

In a local study done in 2004, the estimated cigarette price elasticity in Malaysia was 0.38. This means that every 10% increase in cigarette prices will result in a 3.8% decline in cigarette consumption (Nabilla, Ross & Zarihah, 2006).

This is a close estimate to the average price elasticity for developed countries which is 0.4.

The same study also showed the income elasticity of cigarette demand in Malaysia was estimated to be +10. This means that every 10% increase in income will lead to 10% increase in cigarette demand.

Another local study by Aljunid et al., (2006) found that the cost of treating lung cancer, ischemic heart disease (IHD) and chronic obstructive airway diseases (COAD) wasRM116mil, RM630mil and RM2.3bil, respectively.

It is estimated that in 2010, the cost of treating these three smoking-attributable causes of death increased to about RM4.1bil or 0.84% of the country’s GDP.

This translates to nearly 70% of the cost of treating these diseases being borne by the Government using mainly tax-payers money!

It can then be expected that the tobacco epidemic in Malaysia will spread with income growth if no stringent tobacco control measures are taken.

Increasing tax and price of tobacco products has been identified as an effective strategy to reduce tobacco demand and consumption, as outlined by Article 6 of the WHO Framework Convention on Tobacco Control (FCTC), of which Malaysia is a signed member.

The World Bank Report recommended that in order for tobacco tax increase to be effective, the tax component of the price of a pack of cigarettes be between 2/3 and 4/5 (67 to 80%) of the retail cost.

Currently, tax makes up about 54% of the retail price of cigarettes sold in Malaysia. Thus, there is still much room to increase it to ensure that cigarettes become unaffordable, especially to the youth.

Therefore, if the Government is serious about tackling the tobacco epidemic, the next tax increase must be significant enough to be effective, not just a few sen per stick as previously seen.

Counter arguments from pro-tobacco sectors that the increase in cigarette price will lead to increased smuggling needs to be substantiated with solid evidence, not just based on reports from sources with vested interest.

After all, protecting the health and lives of the rakyat from tobacco epidemic should be the main priority of our policy makers.

ASSOC. PROF DR. M. HANIKI NIK MOHAMED,

Hon. Secretary,

Initiative of Malaysian Health Professionals’ Alliance on Cessation of Tobacco (IMPACT)