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July 6th, 2015:

Making the public health case for tobacco taxation

Let’s be clear. Tobacco use, and its negative health, social and economic impact, is not a global problem that is simply going away.

As documented in a recent study, despite significant reductions in the estimated prevalence of daily smoking observed at the global level for both men and women since 1980, the actual number of smokers has increased significantly over the last three decades as the result of population growth. In 2012, it is estimated that close to one billion people were smokers, up from 721 million in 1980.

Clearly, tobacco use is a global epidemic. If we do not want to be passive spectators to the unhindered growth of this threat to global health, then political will at the highest levels of government needs to be galvanized, coupled with sustained support from civil society and international organizations. This is required not only to shine light upon this deadly but entirely preventable threat, but more importantly, to promote effective and sustained action to deal with it.

A new World Health Organization (WHO) report on tobacco taxation, launched today in Manila, raises a troubling question for policymakers across the world: If, as shown by scientific evidence, tobacco is a leading global disease risk factor, why then are so few governments levying appropriate levels of tax on cigarettes and other tobacco products?

The importance of this question is accentuated by the widely accepted fact that raising taxes on tobacco products is one of the most cost-effective measures to reduce consumption of products that kill, while also generating substantial domestic revenue for health and other essential programs—investments that benefit the entire population.

Findings in the report show that while only 33 countries impose taxes that constitute more than 75% of the retail price of a pack of cigarettes—the taxation level recommended to have an impact on consumption —most countries that do tax tobacco products have extremely low tax rates. And some countries do not have a special tax on tobacco products at all.

Given this situation, the WHO report is a much-needed and timely “call to arms.” It encourages governments to look at accumulated country evidence worldwide, and not simply the tobacco industry’s arguments, and to use tax measures to increase the retail price of tobacco products as one of the best available public health policy measures.

The report outlines some important lessons about how to effectively implement this policy measure to achieve the public health objectives of tobacco taxation, based on empirical evidence:

  • While nearly all countries tax tobacco products, an excise tax is the most important type of tobacco tax, since it applies uniquely to tobacco products and raise their prices relative to prices for other goods and services.
  • Simpler tobacco tax structures are more effective than complex ones, since tiered tax structures are difficult to administer and can undermine the health and revenue impacts of tobacco excise taxes.
  • Use of specific excise taxes enhances the impact of tobacco taxation on public health by reducing price gaps between premium and lower-priced alternatives, which limits opportunities for users to switch to less-expensive brands in response to tax increases. Taxing all tobacco products comparably reduces incentives for substitution.
  • Ad valorem taxes are difficult to implement and weaken tax policy impact. Since they are levied as a percentage of price, companies have greater opportunities to avoid higher taxes and preserve or grow the size of their market by manufacturing and selling lower-priced brands. This also makes government tax revenues more dependent on industry pricing strategies and increases the uncertainty of the tobacco tax revenue stream.
  • Specific excise taxes need to be adjusted for inflation to remain effective.
  • Tax increases should reduce the affordability of tobacco products. In many countries, where incomes and purchasing power are growing rapidly, large price increases are required to offset growth in real incomes.
  • Strong tax administration is critical to minimize tax avoidance and tax evasion, to ensure that tobacco tax increases lead to higher tobacco product prices and tax revenues, as well as reductions in tobacco use and its negative health consequences.
  • Regional agreements on tobacco taxation can be effective in reducing cross-border tax and price differentials and in minimizing opportunities for individual tax avoidance and larger scale illicit trade.

And, I will add, international trade agreements, such as the proposed Trans-Pacific Partnership, which is being negotiated by 14 countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam), could help curb smoking globally if related public health measures adopted by participating countries are protected from the threat of litigation from the tobacco industry.

The report also warns countries against accepting the industry’s argument that illicit trade of tobacco products will thrive if taxes on tobacco products are increased. Accumulated evidence shows that this argument is flawed. While high taxes may create incentives for illicit trade, different country experiences show that illicit trade can be controlled by legal means (e.g., use of prominent tax stamps, serial numbers, special package markings, health warning labels in local languages, adoption of uniform tax rates nationwide that facilitate successful collection at the points of manufacture and import) and by increased law enforcement (e.g., improving corporate auditing, better trace and tracking systems, and good governance).

The report makes the point that controls over the distribution chain (from monitoring of production and/or distribution to licensing of all parties involved in manufacturing, distribution and retailing), improved technologies, and better use of data help to reduce illicit trade and complement tobacco tax reforms.

We at the World Bank, working with WHO and other partners, such as the Bill & Melinda Gates Foundation and Bloomberg Foundation, are committed to support countries in the implementation of tobacco taxation measures as outlined in this report. Effective tax regimes that make tobacco products unaffordable represent an important intervention to tackle the growing burden of noncommunicable diseases and a potential important domestic revenue stream for helping finance the UN’s Sustainable Development Goals (SDGs) across the world.

Tobacco Fact sheet Number 339

Key facts

Tobacco kills up to half of its users.

Tobacco kills around 6 million people each year. More than 5 million of those deaths are the result of direct tobacco use while more than 600 000 are the result of non-smokers being exposed to second-hand smoke.

Nearly 80% of the world’s 1 billion smokers live in low- and middle-income countries.

Leading cause of death, illness and impoverishment

The tobacco epidemic is one of the biggest public health threats the world has ever faced, killing around six million people a year. More than five million of those deaths are the result of direct tobacco use while more than 600 000 are the result of non-smokers being exposed to second-hand smoke.

Nearly 80% of the more than one billion smokers worldwide live in low- and middle-income countries, where the burden of tobacco-related illness and death is heaviest.

Tobacco users who die prematurely deprive their families of income, raise the cost of health care and hinder economic development.

In some countries, children from poor households are frequently employed in tobacco farming to provide family income. These children are especially vulnerable to “green tobacco sickness”, which is caused by the nicotine that is absorbed through the skin from the handling of wet tobacco leaves.

Surveillance is key

Good monitoring tracks the extent and character of the tobacco epidemic and indicates how best to tailor policies. Only 1 in 3 countries, representing one third of the world’s population, monitors tobacco use by repeating nationally representative youth and adult surveys at least once every 5 years.

Second-hand smoke kills

Second-hand smoke is the smoke that fills restaurants, offices or other enclosed spaces when people burn tobacco products such as cigarettes, bidis and water pipes. There are more than 4000 chemicals in tobacco smoke, of which at least 250 are known to be harmful and more than 50 are known to cause cancer.

There is no safe level of exposure to second-hand tobacco smoke.

In adults, second-hand smoke causes serious cardiovascular and respiratory diseases, including coronary heart disease and lung cancer. In infants, it causes sudden death. In pregnant women, it causes low birth weight.

Almost half of children regularly breathe air polluted by tobacco smoke in public places.

Over 40% of children have at least one smoking parent.

Second-hand smoke causes more than 600 000 premature deaths per year.

In 2004, children accounted for 28% of the deaths attributable to second-hand smoke.

Every person should be able to breathe tobacco-smoke-free air. Smoke-free laws protect the health of non-smokers, are popular, do not harm business and encourage smokers to quit.

Over 1.3 billion people, or 18% of the world’s population, are protected by comprehensive national smoke-free laws.

Tobacco users need help to quit

Studies show that few people understand the specific health risks of tobacco use. For example, a 2009 survey in China revealed that only 38% of smokers knew that smoking causes coronary heart disease and only 27% knew that it causes stroke.

Among smokers who are aware of the dangers of tobacco, most want to quit. Counselling and medication can more than double the chance that a smoker who tries to quit will succeed.

National comprehensive cessation services with full or partial cost-coverage are available to assist tobacco users to quit in only 24 countries, representing 15% of the world’s population.

There is no cessation assistance of any kind in one quarter of low-income countries.

Picture warnings work

Hard-hitting anti-tobacco advertisements and graphic pack warnings – especially those that include pictures – reduce the number of children who begin smoking and increase the number of smokers who quit.

Graphic warnings can persuade smokers to protect the health of non-smokers by smoking less inside the home and avoiding smoking near children. Studies carried out after the implementation of pictorial package warnings in Brazil, Canada, Singapore and Thailand consistently show that pictorial warnings significantly increase people’s awareness of the harms of tobacco use.

Only 42 countries, representing 19% of the world’s population, meet the best practice for pictorial warnings, which includes the warnings in the local language and cover an average of at least half of the front and back of cigarette packs. Most of these countries are low- or middle-income countries.

Mass media campaigns can also reduce tobacco consumption by influencing people to protect non-smokers and convincing youths to stop using tobacco.

Over half of the world’s population live in the 39 countries that have aired at least 1 strong anti-tobacco mass media campaign within the last 2 years.

Ad bans lower consumption

Bans on tobacco advertising, promotion and sponsorship can reduce tobacco consumption.

A comprehensive ban on all tobacco advertising, promotion and sponsorship could decrease tobacco consumption by an average of about 7%, with some countries experiencing a decline in consumption of up to 16%.

Only 29 countries, representing 12% of the world’s population, have completely banned all forms of tobacco advertising, promotion and sponsorship.

Around 1 country in 3 has minimal or no restrictions at all on tobacco advertising, promotion and sponsorship.

Taxes discourage tobacco use

Tobacco taxes are the most cost-effective way to reduce tobacco use, especially among young people and poor people. A tax increase that increases tobacco prices by 10% decreases tobacco consumption by about 4% in high-income countries and about 5% in low- and middle-income countries.

Even so, high tobacco taxes is a measure that is rarely implemented. Only 33 countries, with 10% of the world’s population, have introduced taxes on tobacco products so that more than 75% of the retail price is tax. Tobacco tax revenues are on average 269 times higher than spending on tobacco control, based on available data.

Illicit trade of tobacco products must be stopped

The illicit trade of tobacco products poses major health, economic and security concerns around the world. It is estimated that one in every 10 cigarettes and tobacco products consumed globally are illicit. The illicit market is supported by various players, ranging from petty peddlers to organized criminal networks involved in arms and human trafficking.

Eliminating illicit trade in tobacco will reduce the harmful consumption of tobacco by restricting availability of cheap, unregulated alternatives and increasing overall tobacco prices. Critically, this will reduce premature deaths from tobacco use and raise tax revenue for governments. Stopping illicit trade in tobacco products is a health priority, and is achievable. But to do so requires improvement of national and sub-national tax administration systems and international collaboration, such as ratification and implementation of the Protocol to Eliminate the Illicit Trade in

Tobacco Products, an international treaty in its own right, negotiated by parties to the WHO Framework Convention on Tobacco Control (WHO FCTC).

While publicly stating its support for action against the illicit trade, the tobacco industry’s behind-the-scenes behaviour has been very different. Internal industry documents released as a result of court cases demonstrate that the tobacco industry has actively fostered the illicit trade globally. It also works to block implementation of tobacco control measures, like tax increases and pictorial health warnings, by misleadingly arguing they will fuel the illicit trade.

WHO response

WHO is committed to fighting the global tobacco epidemic. The WHO Framework Convention on Tobacco Control entered into force in February 2005. Since then, it has become one of the most widely embraced treaties in the history of the United Nations with 180 States Parties covering 90% of the world’s population.

The WHO Framework Convention is WHO’s most important tobacco control tool and a milestone in the promotion of public health. It is an evidence-based treaty that reaffirms the right of people to the highest standard of health, provides legal dimensions for international health cooperation and sets high standards for compliance.

In 2008, WHO introduced a practical, cost-effective way to scale up implementation of provisions of the WHO Framework Convention on the ground: MPOWER. Each MPOWER measure corresponds to at least 1 provision of the WHO Framework Convention on Tobacco Control.

The 6 MPOWER measures are:

Monitor tobacco use and prevention policies

Protect people from tobacco use

Offer help to quit tobacco use

Warn about the dangers of tobacco

Enforce bans on tobacco advertising, promotion and sponsorship

Raise taxes on tobacco.

For more details on progress made for tobacco control at global, regional and country level, please refer to the series of WHO reports on the global tobacco epidemic.

The WHO FCTC Protocol to Eliminate the Illicit Trade in Tobacco Products requires a wide range of measures relating to the tobacco supply chain, including the licensing of imports, exports and manufacture of tobacco products; the establishment of tracking and tracing systems and the imposition of penal sanctions on those responsible for illicit trade. It would also criminalize illicit production and cross-border smuggling.

For more information contact:
WHO Media centre
Telephone: +41 22 791 2222