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Business of Tobacco
Frank J. Chaloupka, University of Illinois at Chicago
J2J Tobaccos Global Impact Program
Abu Dhabi, UAE, 17 March 2015
1
Overview
Tobacco Taxation
www.tobacconomics.org
$17,000
$0.95
$15,000
$0.85
Tax per
Pack (1/14 Dollars)
$0.75
$13,000
$0.65
$11,000
$0.55
$0.45
$9,000
$0.35
$7,000
$0.25
$0.15
$5,000
Year
Federal Tax
Tax Revenues
8
WHO MPOWER
Raise Taxes on Tobacco
We [] have a package of
six policy measures, known
as MPOWER, that can help
countries implement the
provisions in the Convention.
All six measures have a
proven ability to reduce
tobacco use in any resource
setting. But tobacco taxes
are by far the most
effective.
Director General Dr. Margaret Chan,
WHO, 2008
www.tobacconomics.org
33
Prevalence
29
$4.00
$3.50
25
$3.00
$2.50
21
$2.00
17
$1.50
Year
Prevalence
Price
Source: Tax Burden on Tobacco, 2013, National Health Interview Survey, and authors calculations
13
Annual Economic Costs of Smoking (2010) & Cigarette Tax & MSA Revenues (2012),
Billion Dollars
$150.8
$170.6
$109.6
$38.7
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
15
$180.0
Total covered
Specific excise only
Ad valorem excise only
Mixture of both excises
No Excise
No Excise
Specific &
Ad-valorem
Only AdValorem
Only
Specific
51
28
13
High
51
18
17
Upper
Middle
52
11
19
18
Lower
Middle
32
18
Low
186
20
60
50
56
All
Countries
Afghanistan,
Antigua &
Barbuda,
Bahrain, Iran,
Iraq, Kiribati,
Kuwait, Libya,
Maldives,
Marshall
Islands,
Mauritania,
Niue, Oman,
Palau, Qatar,
Saint Lucia,
Saudi Arabia,
Sierra Leone,
Somalia,
United Arab
Emirates
Mix (59)
Ad Valorem (36)
Specific (51)
Uniform (51)
Tiers (8)
Uniform (30)
Tiers (6)
Uniform (32)
Tiers (19)
Andorra,
Brazil, China,
Kyrgyzstan,
Moldova,
Pakistan, Sri
Lanka,
Ukraine
Angola,
Argentina,
Bahamas,
Benin, Bolivia,
Burundi,
Cambodia,
Cameroon,
Ethiopia, Gabon,
Ghana,
Guatemala,
Guinea, GuineaBissau, Guyana,
Laos, Lebanon,
Madagascar,
Niger, Nigeria,
Paraguay,
Rwanda,
Sudan, Syria,
Togo,
Turkmenistan,
Venezuela,
Vietnam, Yemen,
Zambia
Bangladesh,
Burkina
Faso, Ivory
Coast,
Senegal,
Mali,
Myanmar
Albania, Australia,
Azerbaijan,
Barbados,
Botswana, Brunei,
Canada, Cook
Islands, Cuba,
Ecuador, Haiti,
Honduras, Jamaica,
Japan, Lesotho,
Macao, Malawi,
Mauritius, Namibia,
Nicaragua, Norway,
Panama, Peru,
Singapore, South
Africa, South Korea,
Suriname,
Swaziland, Taiwan,
Trinidad & Tobago,
United States,
Uruguay
Algeria,
Armenia,
Belarus,
Belize, Fiji,
Georgia,
Hong Kong,
India,
Indonesia,
Kazakhstan,
Mozambique,
Nepal, New
Zealand,
Papua New
Guinea,
Philippines,
Tajikistan,
Tanzania,
Uganda,
Uzbekistan
Note: The following countries imposed a minimum tax in addition to their statutory rates: the 27 EU countries, Israel, Russia, Switzerland,
Turkey, Turkmenistan and Ukraine; * Turkey's excise system changed from uniform ad valorem to uniform mix in 2013
Source: TMA 2012 and WHO
Country
Base of tiers
Retail price
China
Producer price
Indonesia
Production volume
11
filter/non filter
hand/machine made
Indonesia, Myanmar
kretek/white cigarette,
cheerot/cigarette
Andorra, Algeria
soft/hard
Cigarette length
Andorra, Uzbekistan
Trade (domestic/imported)
Fiji
Type
Packaging
Seven countries differentiate their excises based on more than one criteria: Andorra, Belarus, India,
Indonesia, Mozambique, Nepal and Philippines. Sources TMA 2012 and WHO
1.57
3.73
Specific only
1.28
2.50
Ad valorem only
1.32
2.86
Mix system
1.67
3.84
1.11
2.29
1.70
No excise
Source: WHO 2013
0.50
0.40
0.30
Standard Deviation, Prices of Top 5 Brands
0.20
0.10
0.00
Article 6 Guidelines
Recommendations - Section 3 Tobacco
taxation systems
Parties should implement the simplest and most efficient
system that meets their public health and fiscal needs,
and taking into account their national circumstances.
Parties should consider implementing specific or mixed
excise systems with a minimum specific tax floor, as
these systems have considerable advantages over
purely ad valorem systems.
www.tobacconomics.org
Harm reduction?
Cigarettes
1,500,000
P
o
u
n
d
s
1,000,000
500,000
RYO
Pipe Tobacco
Article 6 Guidelines
Recommendations - Section 3 Tobacco taxation
systems
All tobacco products should be taxed in a comparable way as
appropriate, in particular where the risk of substitution exists.
Parties should ensure that tax systems are designed in a way
that minimises the incentive for users to shift to cheaper
products in the same product category or to cheaper tobacco
product categories as a response to tax or retail price
increases or other related market effects.
In particular, the tax burden on all tobacco products should be
regularly reviewed and, if necessary, increased and, where
appropriate, be similar.
www.tobacconomics.org
2.65
CONSUMPTION
16000
2.45
15000
14000
2.25
13000
2.05
12000
1.85
11000
1.65
PRICE
10000
1.45
9000
1971
1.25
1974
1977
1980
1983
1986
1989
1992
1995
Year
Source: Townsend 1998
P r ic e ( ) 1 9 9 4 va lu e
C ig a r e t t e C o n s u m p t io n
1 9 9 4 p r ic e s ( m )
17000
295
275
$4.50
255
$4.00
235
$3.50
215
195
$3.00
175
$2.50
155
$2.00
135
$1.50
Price
Cigarette Tax Revenue Economic Report
J. Chaloupka
115
Sources: Tax Burden on Tobacco, 2014; Bureau of Labor Statistics; and Authors Calculations
Frank
700
25,000
600
23,000
500
400
19,000
300
17,000
200
15,000
100
Million Sticks
13,000
0
1990 1991 1992 1993 1994 1995
1996 1997Million
1998 Sticks
1999 2000 2001 Linear
2002 2003
2004 2005
2006Sticks)
2007 2008 2009 2010 2011
Consumption,
(Consumption,
Million
Price, 2011 Forints
Linear (Price, 2011 Forints)
www.tobacconomics.org
23
21
19
Prevalence
17
15
13
11
9
350
400
450
500
550
600
650
700
750
800
850
16
15
15
4.9
14
14
Adult Smoking Prevaleence
13
13
3.9
12
12
11
2006
2007
2008
2009
2010
2011
2012
3.4
2013
200,000
150,000
100,000
50,000
65
60
50
45
350
400
450
500
550
600
650
700
750
800
850
f(x) =
R = 0
Cigarette Prices and Youth Smoking Prevalence US States & DC, 2009
27
25
23
21
19
17
Prevalence
15
13
11
7
350
400
450
500
550
600
650
700
750
800
850
$5.75
26
$4.25
21
$3.50
16
$2.75
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Cigarette Price
5.5
5.0
4.5
250
4.0
200
3.5
3.0
150
2.5
Relative price
2.0
100
6.0
1.5
1.0
50
1980
1985
1990
1995
2000
2005
2010
Year
50
P
r
i
c
e
(
1
9
9
0
R
M
B
)
1.97
70.9
1.77
68.9
P
a
c
k
s
1.57
66.9
p
e
r
1.37
64.9
1.17
62.9
0.97
60.9
1
www.tobacconomics.org
10
C
a
p
i
t
a
6.3
70.9
5.8
68.9
P
a
c
k
s
66.9
P
e
r
5.3
4.8
4.3
64.9
3.8
62.9
3.3
2.8
60.9
1
www.tobacconomics.org
10
C
a
p
i
t
a
70.9
68.9
66.9
P
a
c
k
s
P
e
r
1.94
64.9 C
a
p
62.9 i
t
a
1.89
60.9
Affordability
www.tobacconomics.org
$14.00
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
Excise Tax
GST
Industry Price
Article 6 Guidelines
Recommendations - Section 3 Tobacco
taxation systems
Parties should establish coherent long-term policies on
their tobacco taxation structure and monitor on a
regular basis including targets for their tax rates, in
order to achieve their public health and fiscal objectives
within a certain period of time.
Tax rates should be monitored, increased or adjusted
on a regular basis, potentially annually, taking into
account inflation and income growth developments in
order to reduce consumption of tobacco products.
www.tobacconomics.org
35
33
$800
31
29
$600
Total Funding
$Millions (FY10 dollars)
27
$400
25
23
$200
21
$0
19
Year
total state program funding
www.tobacconomics.org
Article 6 Guidelines
Recommendations - Section 5 Use of
Revenues Financing of Tobacco Control
Parties could consider, while bearing in mind
Article 26.2 of the WHO FCTC, and in accordance
with national law, dedicating revenue to tobaccocontrol programmes, such as those covering
awareness raising, health promotion and disease
prevention, cessation services, economically
viable alternative activities, and financing of
appropriate structures for tobacco control.
www.tobacconomics.org
5.82
58.40%
48.72%
50.31%
40.76%
PPP
3.12
3.29
3.00
2.67
1.65
1.57
0.61
High income
Upper middle
Lower middle
1.35
1.18
0.97
0.31
Low income
China
All
Note : Averages were weighted by number of current cigarette smokers in each country.
Because of the very large number in China, China's estimates were added separately.
Source: WHO GTCR IV
4.49
73.16%
53.21%
55.92%
3.13
50.27%
48.06%
2.63
2.58
39.91%
PPP
1.92
1.77
1.62
1.17
0.80
0.70
AFRO
AMRO
Retail price, PPP
EMRO
Excise tax PPP
0.59
EURO
SEARO
WPRO
Note : Averages were weighted by number of current cigarette smokers in each country.
Source: WHO GTCR IV
Economic Impact of
Tobacco Taxes
Oppositional Arguments
www.tobacconomics.org
2.90
8500
Taxation revenue
8000
( million)
7500
2.40
7000
1.90
6500
6000
Price
5500
1.40
Year
Source: Townsend, 2010
9000
8000
20
7000
6000
15
5000
Rand per Pack
10
3000
2000
1000
Industry Price
Excise Tax
VAT
www.tobacconomics.org
www.tobacconomics.org
Foregone income 2:
Treatment cost &
Lost working days &
income
Breadwinner gets
sick due to
tobacco use
Cycle of
tobacco and
poverty
Foregone income 1:
More money spent
Less money spent
on tobacco:
on Education, nutrition etc
High opportunity cost
Source: Yurekli, 2007
www.tobacconomics.org
Crowding Out
17 ITC Countries
Tobacco crowds out
spending on essentials.
Greater crowding out in
LMICs
80
www.tobacconomics.org
www.tobacconomics.org
8.5%
9%
4%
-1%
-2.2%
-6%
-11%
-16%
-18.5%
-21%
-20.4%
-26%
-31%
-36%
-35.3%
Change in Consumption
www.tobacconomics.org
www.tobacconomics.org
Tobacco-Related Employment
www.tobacconomics.org
www.tobacconomics.org
www.tobacconomics.org
www.tobacconomics.org
95
www.tobacconomics.org
f(x) =
R = 0
10
12
14
Price USD
www.tobacconomics.org
0.45
0.4
0.35
0.3
0.25
illicit cigarette trade volume
0.2
0.15
0.1
0.05
0
1
f(x)2=
R = 0
5
6
Transparency Index
10
www.tobacconomics.org
www.tobacconomics.org
www.tobacconomics.org
www.tobacconomics.org
Better enforcement
Increased resources
Focus on large scale smuggling
Summary
Cost-Effectiveness
$5,000
$4,000
$3,000
$2,000
Cost per DALY Averted
$1,000
$0
High Income
Low Income
Source: WHO, unpublished data
Overview
Globally, the tobacco industry continues to
evolve and market power has increased
This has consequences for tobacco use and
tobacco control
www.tobacconomics.org
Trade Agreements
Global/Multilateral treaties:
e.g. GATT/World Trade Organization
3,000
$12,000
2,500
$10,000
2,000
$8,000
1,500
$6,000
1,000
$4,000
500
$2,000
$0
$25,000
1,000
$20,000
800
Million Tonnes
$15,000
Million Dollars
600
$10,000
400
$5,000
200
$0
www.tobacconomics.org
Others to come?
1990
1995
CNTC
PMI+Altria
2000
BAT
2006
JTI
ITG
2010
2013
Others
Euromonitor, 2015
Euromonitor, 2014
Euromonitor, 2015
Euromonitor, 2014
Euromonitor, 2014
Pricing Power
Pricing Power
Euromonitor, 2014
3
2.4
2
2.4
2.3
2
1.9
1.9
1.9
1.8
1.7
1.7
1.6
1.5
1.4
1.4
1.3
1.3
1.2
1.2
1.1
1.1
1.1
Euromonitor, 2014
Euromonitor, 2014
Euromonitor, 2014
Euromonitor, 2014
Consequences of
Globalization for
Tobacco Control
Consequences of Globalization
Challenges to national tobacco
control policies
Challenges posed by new products
Regionalization of production
On the plus side: Global action to
counter a globalized industry
Renormalization
140
142
Differential taxation
Allow some forms of marketing
Regionalization of Production
Consolidation/centralization of production in
regional production hubs
Capitalize on significant economies of scale in
production of tobacco products
Take advantage of regional trade agreements that
greatly reduce or eliminate barriers to trade in tobacco
products
Generally located in:
Large consuming country within region
Country where labor, tobacco leaf, other costs are low
Saudi Arabia
Azerbaijan
Kazakhstan
Cameroon
Nigeria
www.tobacconomics.org
Summary
Strong evidence base to support guiding
principles and recommendations
Involvement of many Parties in developing
guidelines
Considerable scope for strengthening tax
systems and increasing taxes
Increasing examples of best practices
globally
But still many more examples of less than best
practices