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June, 2015:

Tobacco tax

Tobacco tax has been largely overlooked in tax justice discussions – perhaps because it’s a relatively niche issue compared to income tax, for example. But there are important reasons why we should see tobacco tax as a significant justice issue, and there may be important political lessons to learn about how leading opponents of effective taxation operate.


My erstwhile CGD colleague Bill Savedoff and Albert Alwang have just published a powerful paper whose title says it all: “The Single Best Health Policy in the World: Tobacco Taxes.”

The authors survey the substantial literature and set out the key findings. Very briefly:

  • tobacco taxes are ‘the single most cost effective way to save lives in developing countries’;
  • the benefits in terms of premature deaths avoided accrue disproportionately to the poorest people (Figure 4);
  • substantial revenues can also be raised; and
  • we know what effective (and ineffective) tobacco taxes look like.


Why then are the appropriate policies not being pursued in more countries? Savedoff and Alwang address this question too (p.13):

“Tobacco companies have undermined public health efforts to save hundreds of millions of lives by delaying the introduction of tobacco taxes, reducing tax rates, or advising countries to adopt tax policies that are less effective at reducing tobacco consumption. They do so by promoting false or exaggerated concerns related to the effect of tobacco taxes on employment, government revenues, poor people and smuggling.”

Those ‘concerns’ include:

  • The claim that other (less effective) approaches are better than tax;
  • The claim that other (less effective) tax approaches may be better for revenue;
  • The claim that tobacco taxes are regressive, and ultimately borne most by households that policymakers (should) care about; and
  • The claim that tobacco tax will increase illicit tobacco (a phenomenon for which only tobacco companies have been found guilty, repeatedly over time and across the world).

No prizes, I’m afraid, for identifying parallels with some of the more extreme lobbying against multinational corporation tax/transparency measures.

Where these tactics have been successful despite the evidence, it is in large part because the tobacco lobby’s power is unmatched – and it is difficult to create an equivalently focused counter-lobby in defence of those unknown people who will lose their lives unnecessarily in the future.

The need for more effective coordination of advocacy for effective tobacco taxes is clear; where it will come from is not, despite important efforts from Bloomberg Philanthropy and the Gates Foundation. Does it fall to a handful of foundations to take on big tobacco around the world? Where are the World Bank and IMF? Where are leading development donor countries which have done much to reduce their own tobacco consumption?

The Trans-Pacific Partnership’s glaring double standard

Obama’s new pact provides legal rights to corporations that it does not extend to unions and public interest groups


In promoting a proposed trade pact covering 12 Pacific Rim nations, President Obama has cast the initiative as an instrument of equity. The Trans-Pacific Partnership would, in his words, “level the playing field” and “give our workers a fair shot.” But critics argue that within the hundreds of pages of esoteric provisions, the deal — like similar ones before it — includes a glaring double standard: It provides legal rights to corporations and investors that it does not extend to unions, public interest groups and individuals.

Recently leaked drafts of the agreement show the pact includes the kind of “Investor-State Dispute Settlement” (ISDS) provisions written into most major trade deals passed since the North American Free Trade Agreement. Those provisions allow companies to use secretive international tribunals to sue sovereign governments for damages when those governments pass public-interest policies that threaten to cut into a corporation’s profits or seize a company’s property.

But also like past trade deals, the TPP is not expected to allow unions and public-interest groups to bring their own suits in the same tribunals to compel governments to enforce labor, environmental and human rights laws.

The discrepancy is a deliberate effort to make sure trade policy includes a “tilt toward giant corporations,” Sen. Elizabeth Warren, D-Mass., said.

“If a Vietnamese company with U.S. operations wanted to challenge an increase in the U.S. minimum wage, it could use ISDS,” Warren wrote in a Washington Post op-ed in February. “But if an American labor union believed Vietnam was allowing Vietnamese companies to pay slave wages in violation of trade commitments, the union would have to make its case in the Vietnamese courts.”

The Obama administration argues that concerns from TPP opponents are exaggerated because to date the federal government has “never once lost an ISDS case.”

But those opponents counter by noting that those cases are on the rise across the globe. As the United Nations reported recently, ISDS cases “have proliferated in the past 10-15 years, with the overall number of known treaty-based arbitrations reaching 514.”

While trade deals include rhetoric saying the international tribunal process is not designed to undermine public interest policies, some of the cases brought by corporations have directly targeted those laws.

Philip Morris, for example, has filed suits against Australia and Uruguay, which require health warnings on tobacco products. In the ISDS process, Philip Morris is arguing that the requirements expropriate its property, deny the company fair treatment and unduly cut into its profits.

Similarly, a Swedish energy firm has used ISDS to target Germany’s restrictions on coal-fired and nuclear power plants, and Eli Lilly and Company is using the process to try to fight Canada’s efforts to limit drug patents and reduce the price of medicine. Most recently, Canadian Finance Minister Joe Oliver said bank regulations passed in the wake of the 2008 financial crisis could be a violation of trade provisions under NAFTA, raising the prospect of banks using the tribunal process to try to get the federal government to eliminate those regulations.

“Corporations under ISDS can bring cases without their national government’s permission, while unions and environmental groups in order to enforce the labor rights and environmental rights in these agreement have to get their government to bring the case,” said Damon Silvers, the AFL-CIO’s associate general counsel.

Government action has been rare. In 2014, the Government Accountability Office criticized “limited monitoring and enforcement” of trade deals’ protections for labor rights.

Opponents of the TPP say the new deal would do little to increase enforcement, and much to give companies special rights.

Sure, corporations may still be considered people under U.S. domestic law — but under American trade policy, they get far more rights than almost everyone else.

Marching to Big Tobacco’s tune?

Has the global tobacco advocacy been manipulated by Big Tobacco’s lobbying agenda? Where the tobacco lobby is concerned, it would be naive to think there’s smoke without fire.

One of the dirtier secrets of the international tax world — and yes, the bar is quite high — is the role of tobacco companies in seeking to manipulate policies that might reduce the number of people dying because they consume tobacco.

The main angle taken by the lobby has been to direct attention toward “illicit” tobacco, where customs duties and tax may not have been paid.

Now I care a lot about tax, but even I can see that whether tobacco was taxed before being consumed is barely even a second-order issue, when compared to the question of whether people are dying because of their consumption — which they are, and will continue to do, in their millions.

But the thematic focus of the World Health Organization’s (WHO) World No Tobacco Day 2015 is not directly on stopping tobacco consumption, as the name might suggest. Instead it turns out to be: “Stop the illicit trade in tobacco products.”


Tobacco kills. And overwhelmingly, it kills poorer rather than richer people; and as time goes by, it kills people in poorer rather than richer countries.

In a rich country like the United States, researcher Prabhat Jha and colleagues find that: “The rate of death from any cause among current smokers was about three times that among those who had never smoked… The probability of surviving from 25 to 79 years of age was about twice as great in those who had never smoked as in current smokers (70% vs 38% among women and 61% vs 26% among men). Life expectancy was shortened by more than 10 years among the current smokers, as compared with those who had never smoked.” But it is in lower-income countries where most smokers and tobacco consumers are, and will be. Consequently, it is in lower-income countries where most tobacco-related deaths happen and will happen: Over four million a year, more than TB, malaria and HIV/AIDS combined (data from Tobacco Atlas). And the costs are likely only to rise, since the number of daily smokers continues to grow, from 721 million in 1980 to 967 million in 2012 (despite a drop in smoking prevalence).

So call it a billion daily smokers. That’s a big market, for something expensive and addictive.


The most visible activity of the tobacco lobby is that carried out by the International Tax and Investment Center (ITIC). The Financial Times covered the ITIC in October, under the headline “Tobacco lobby aims to derail WHO in tax increases.” It reported:

“A tobacco industry-funded lobby group will attempt to derail a World Health Organization summit aimed at agreeing increased taxes on smoking, according to leaked documents seen by the Financial Times.

“The International Tax and Investment Center, which is sponsored by all four major tobacco groups, will meet on the eve of the WHO’s global summit on tobacco policy in Moscow later this month in a bid to head off unwanted duty increases.”

The WHO sees the ITIC’s actions as so extreme that it has called for governments not even to engage with them. With such a position taken by a major United Nations (UN) body, the ITIC cannot be seen as legitimate in its claim to provide objective analysis to governments around the world.


But within the tax sphere, many leading actors work with the ITIC.

As the Observer highlighted, the former permanent secretary of HM Revenue and Customs (head of the United Kingdom tax authority) became a director of ITIC just a year after stepping down. His justification, given to the paper, was that he is not an executive director and is unpaid; and that around 50 other “leading figures in taxation” are involved in the same way.

The ITIC’s “senior advisors” list is certainly an impressive one from the tax perspective, including a number of respected researchers and tax officials, with Jeffrey Owens — former head of the Organization for Economic Cooperation and Development (OECD) tax arm, the Centre for Tax Policy and Administration — singled out as a “Distinguished Fellow.”

Similarly, it’s unclear why non-tobacco multinationals like Goldman Sachs or ExxonMobil would want to associate themselves with this lobby, not to mention the professional services firms which include the big four accounting firms, and lawyers such as Pinsent Masons.

The ITIC explains it this way: “Sponsors recognize the tremendous value added by ITIC in the countries in which they operate, through the promotion of an environment that welcomes business.”

But commercial organizations of this size can surely promote such an environment without the taint of tobacco lobbying.

There could hardly be a clearer message for the sponsors and fellows to find an alternative to the ITIC, than for a major UN organization like the WHO actively warning governments not even to engage with it.


What about the substantive basis for the arguments made by the ITIC?

The main claim made is that taxing tobacco creates incentives for illegal tobacco trade. This in turn reduces the revenue benefits of the tax, and also encourages criminal activity:

“This growing and dangerous problem is not just a tax issue — beyond substantial government revenue losses, the impact of illegal trade constrains economic development and raises barriers and costs for international trade,” said Daniel Witt, president of ITIC. “It also poses significant health risks, and presents numerous challenges for law enforcement, from violations of intellectual property rights to money laundering and organized crime activity.”

Arguments along these lines have been used in seeking to influence tax policy — that is, against higher tobacco taxes — from Ukraine to the Philippines, with critics arguing that the estimates provided tend to systematically overstate the case.

A recent study published in the British Medical Journal’s Tobacco Control, for example, looks at estimates produced for Hong Kong, and finds that: “The industry-funded estimate was inflated by 133 — 337% of the probable true value.”

As Bill Savedoff highlights in his Center for Global Development podcast, the broader evidence simply does not support the claim that higher tobacco taxes lead to illicit tobacco trade. Significant tax rises over the last 10-15 years have not been associated with any increase in the proportion of tobacco that is illicit (about 9%-11%). Other factors like enforcement and effective tax administration seem much more important.

In addition, as Savedoff puts it: “What’s particularly ironic about this argument from the tobacco companies is that they are the ones that have been responsible for most smuggling… Essentially, to get the magnitude of smuggling that you would need, to have an impact on the tobacco tax, or consumption, you have to have the complicity, if not the actual responsibility, of the tobacco companies themselves.”

Also, Michal Stoklosa of the American Cancer Society in a Tobacco Atlas paper, argues that “most importantly, it is clear that the measures that aim at reducing demand for cigarettes more generally are crucial in reducing the illicit trade problem.”

There is no doubt that illicit trade in tobacco exists; and nobody argues it’s a good thing. But it’s clearly not the big issue about tobacco consumption — that would be, er, tobacco consumption.

Illicitness, in this case, is not associated with any greater health damage. And overall tax revenue losses do not seem to result from well-administered rises in tobacco taxation that cuts consumption, because illicit trade has tended not to increase. (As an aside: unlike some taxes, revenue is not the prime reason for “sin” taxes — in this case the aim is, explicitly, to reduce the tax base and eventually the revenues, by curtailing damaging behavior.)

Should the WHO then use its biggest awareness-raising moment of the year to focus on illicit trade? From the outside, it seems clear that “No Tobacco” would have found a stronger expression in a theme that sought to reduce all tobacco consumption.

I don’t mean to suggest anything illicit in the WHO’s adoption of this theme. Clearly they have taken a very direct stance against the well-funded lobbying of the ITIC. But if we ask whether this theme would have been chosen, absent ITIC lobbying over recent years, it seems likely the answer is no. I hope the WTO can stick to the mission of the day — that is, of No Tobacco.

For now, chalk one up for the ITIC.

But then ask: Of the many individuals — the chairmen, co-chairmen and directors — and the professional services firms and non-tobacco multinationals working with the ITIC, how many would see this as a win?

Do they each mean to lend their names and reputation to an organization that has consistently lobbied individual governments, especially in developing countries, and international organizations, against tax measures that are proven to reduce tobacco consumption, and all the health damage and needless death that results?

If not — and I very much hope not — then World No Tobacco Day 2015 seems like a fine time to step away from the ITIC.

Alex Cobham is an Oxford-based economist who has collaborated with Action for Economic Reforms in advancing tax reforms. He is the director of research of the Tax Justice Network.

Customs foils suspected sea-bound smuggling of illicit cigarettes

Hong Kong (HKSAR) – Hong Kong Customs smashed a suspected sea-bound smuggling case of illicit cigarettes at the seashore in Lau Fau Shan this morning (June 27). About 210 000 sticks of suspected illicit cigarettes were seized and the estimated market value and duty potential were about $600,000 and $400,000 respectively. A 45-year-old man was arrested and the light goods vehicle used for conveying the illicit cigarettes was detained for investigation.

Customs mounted an anti-illicit cigarette operation in Lau Fau Shan at about 4am today.

In the operation, Customs officers found a porter moving goods to a light goods vehicle near the seashore. Customs officers intercepted the 45-year-old porter and searched the vehicle. About 210 000 sticks of suspected illicit cigarettes contained in 21 foam boxes were found in the light goods vehicle.

Under the Import and Export Ordinance, smuggling is a serious offence.

The maximum penalty is a fine of $2 million and imprisonment for seven years.

Under the Dutiable Commodities Ordinance, anyone involved in dealing with, possession of, selling and buying illicit cigarettes commits an offence. The maximum penalty on conviction is a fine of $1 million and imprisonment for two years.

Members of the public are urged to report any suspected illicit cigarette activities to the Customs’ hotline at 2545 6182.

BMJ investigation examines bitter dispute over e-cigarettes in the public health community

Download (PDF, 219KB)

MOH, HPB, HSA consider ban of point-of-sale displays of tobacco products

SINGAPORE: The Ministry of Health (MOH), Health Promotion Board (HPB) and Health Sciences Authority (HSA) will be holding a public consultation to seek views from the public from Jun 25 to Jul 24, 2015 on proposed amendments to the Tobacco (Control of Advertisements and Sale) Act (TCASA), MOH announced in a media release on Thursday (Jun 25).

The Tobacco (Control of Advertisements and Sale) Act prohibits advertisements, promotions and sponsorships relating to tobacco products and their use, controls the use of tobacco products by young persons, as well as regulates the sale, packaging and trade description of tobacco products, according to MOH.

MOH, HPB and HSA are proposing the following amendments to the Tobacco (Control of Advertisements and Sale) Act:

To prohibit point-of-sale displays (POSD) of tobacco products

Under the proposed ban, tobacco retailers will be required to keep tobacco products out of patrons’ direct line of sight, in permanent, self-closing and opaque storage units within their stores. Penalties such as fines, will be imposed if retailers do not comply with the requirements in the regulations.

The POSD ban aims to reduce exposure of non-smokers to tobacco products. It also aims to reduce impulse purchases of tobacco products, which may help smokers who are trying to stub out their smoking habits.

Make further amendments relating to the POSD ban

The Act will be amended to allow tobacco retailers to show text-only price lists of tobacco products to customers upon request. This is so customers will not need to request to view the tobacco products within the storage units for an extended period of time, reducing the period which other customers are exposed to tobacco.

Additionally, Section 13 of the Act will be amended to allow the Government to standardize and prescribe specifications for the visual characteristics of “No Sale to Minors” signage used by retailers.

Make other technical and administrative amendments

A number of administrative and technical amendments are proposed to streamline operational and enforcements aspects of the Act, to update the Act for better control of imitation tobacco products and tobacco promotions, advertisements and sponsorship, and to fine-tune the existing law.

MOH previously sought feedback on the above measures through a public consultation in Jun 2013, it said. Trade engagement sessions with tobacco retailers were also conducted in November 2014, to address their potential concerns with the introduction of the POSD ban.

The Tobacco (Control of Advertisement and Sale) Act will be amended after the public consultation and engagement sessions, according to the release.

The public can submit feedback on the proposed amendments to the Act using this form online. All feedback should reach MOH by 5pm on Jul 24.

– CNA/dl

WCO Knowledge Academy 2015 – Excisable Products and Illicit Trade Module–excisable-products-and-illicit-trade-module

WCO Knowledge Academy 2015 – Excisable Products and Illicit Trade Module

By Elizabeth Allen, Program Advisor, ITIC

For the fourth consecutive year, ITIC developed an excise-related module for the World Customs Organization as part of its’ annual two week Knowledge Academy. The Knowledge Academy provides customs officials from around the world with an opportunity to learn about the latest trends and good practice in a range of different customs related issues as part of their continuous professional development.

ITIC Program Advisor, Liz Allen, put together a two-day module on excisable products and illicit trade with the assistance of the WCO, who provided some of the speakers. Other speakers were drawn from ITIC industry sponsors in excisable products, Spirits Europe, Euromonitor International and Interpol.

Knowledge Academy delegates are able to attend a number of different modules according to subjects that are of interest to them. Consequently, the numbers present for the different sessions varied over the two days. The class list included delegates from Ireland, Australia, Malaysia, Sri Lanka, DR Congo, Ethiopia, Cuba, Cameroon, Cote d’Ivoire, and Angola. Participants included Directors and Deputy Directors-General of Customs and Revenue Authorities, two private sector delegates and a representative from the World Health Organization.

All presentations commissioned by ITIC will be available on the ITIC website and the full range of presentations will be available to WCO members on their members only website.

Mr. Andy Logan (Oxford Economics) and Ms. Liz Allen (ITIC)

Mr. Andy Logan (Oxford Economics) and Ms. Liz Allen (ITIC)

Ms. Liz Allen (ITIC), Ms. Helen Smith (Euromonitor Int.), and Ms. Nehna Rauf (Euromonitor Int.)

Ms. Liz Allen (ITIC), Ms. Helen Smith (Euromonitor Int.), and Ms. Nehna Rauf (Euromonitor Int.)

Customs detects suspected case of illicit cigarettes concealed in fake dip soldering devices

Hong Kong (HKSAR) – Hong Kong Customs detected a suspected case of using fake dip soldering devices to conceal illicit cigarettes today (June 25) at Lok Ma Chau Control Point. About 800 000 sticks of suspected illicit cigarettes were seized on an incoming lorry. The total market value of the cigarettes was about $2.2 million with a duty potential of about $1.5 million.

In the operation, a 45-year-old male driver was arrested and the lorry used in the suspected smuggling of illicit cigarettes was seized.

Customs officers at Lok Ma Chau Control Point this morning intercepted an incoming lorry declared to be carrying a batch of express cargo. After thorough inspection, Customs officers found about 800 000 sticks of suspected illicit cigarettes inside 58 fake dip soldering devices. It was believed that speedy distribution of the illicit cigarettes to various buyers in the territory would be arranged.

A Customs spokesman said today, “Hong Kong Customs will continue to carry out stringent enforcement action against the smuggling of illicit cigarettes at boundary control points.”

Under the Import and Export Ordinance, smuggling is a serious offence.

The maximum penalty is a fine of $2 million and imprisonment for seven years.

Members of the public are urged to report suspected illicit cigarette activities by calling the Customs 24-hour hotline 2545 6182.

Arlington raises age for tobacco purchases to 21

By Jennifer Fenn Lefferts Globe Correspondent June 25, 2015

Arlington will raise the minimum legal age to purchase tobacco and nicotine delivery products to 21 on Wednesday, July 1, the final phase in a three-year step-up plan. In May 2013, the town’s Board of Health adopted a regulation restricting the sale of tobacco and nicotine delivery products that initially raised the legal age to 19, and then to 20 on July 1, 2014. The regulation also banned the sale of tobacco products at health care institutions and pharmacies; there are now 19 businesses in town holding tobacco sales permits. “We know that the earlier people start smoking, the more likely it is to become a habit,’’ the Health & Human Services Department’s acting director, James Feeney, said in a statement. “We want to stop this trend.”

Hungary Considering Introduction Of Australian-Style Uniform Packaging For Tobacco Products

Hungary is considering the introduction of uniform packaging for tobacco products, which would mean that all such goods would have identical packaging and advertising tobacco products would be prohibited. This system is already in place in Australia and authorities in France and Ireland are also planning its introduction. A proposal on the matter is expected to be tabled by Parliament in autumn.

According to plans, the construction of Budapest’s new hospital would be financed by a special tax levied upon tobacco companies.

In Australia, a law has been in place since December 2012 which obliges retailers to sell tobacco products in identical packaging, which is prohibited to carry insignia, colours or design elements which set a given brand apart other products on the tobacco market. The law was set in place with the explanation that some 15 000 people died each year in Australia alone from illnesses connected to smoking, costing the state a total of 31.5 billion dollars.