Responding to Your Questions About Tobacco Tax Policy in Africa
Recently, the Economics for Health team alongside our colleagues at the African Tobacco Control Alliance (ATCA) hosted a webinar to launch the Sub-Saharan Africa Cigarette Tax Scorecard brief and discuss tobacco tax policy in the region more broadly. We were excited to see your engagement and the desire to apply the Cigarette Tax Scorecard findings to your own work. Below, you will find some of the questions and responses from the webinar.
Please reach out to economicsforhealth@jh.edu with any additional questions or comments that you may have.
We find that at a population level, overwhelmingly, tobacco taxes are progressive. We observe that people in lower-socioeconomic groups are more sensitive to higher prices and more likely to quit or decrease consumption. This is mainly due to differences in the price elasticity of demand. In a recent study in Argentina, our colleagues found that a 10% price increase led to a 4.4% decrease in consumption among higher income individuals, but for those in the lower socioeconomic status (SES), it was an 8.5% decrease.
When we look at the distribution of benefits from higher taxes, they go disproportionately to those in lower SES groups. For example, considering income gains after a price increase, all SES groups' incomes went up, but the lowest SES households' average incomes went up the most (by a lot in Turkey, for example!).
To reduce the harm among those that don’t or can’t quit smoking, we recommend that governments allocate some portion of the new tax revenues specifically to help these individuals, for example, with free cessation programs with counseling, including medicines and nicotine replacement therapies (e.g., the nicotine patch or gum).
2. What accountability and transparency mechanisms should be established to track how tobacco tax revenues are collected, allocated, and utilized? How can governments prevent the flow of illicit products?
There are many possibilities and best practices here including track-and-trace systems. Before even getting to that point, there are many less onerous interventions that can make a big difference, such as licensing all the actors in the supply chain (e.g., producers, importers, wholesalers, retailers, etc.) and demanding due diligence from these actors.
Kenya is an excellent example of a country that strictly controls its supply chain. Among other measures, the country has an effective track-and-trace system in place and does an outstanding job of monitoring the movement of tobacco products throughout the supply chain. A partnership with the Ministry of Justice (or the Attorney General) is also essential to adapt laws and regulations accordingly. One of the main problems we observe is a weak legal framework, which prevents law enforcement authorities from penalizing offenders or effectively stopping them from carrying out illegal activities.
Inadequate import and export regulations can also hinder tobacco control efforts, whether through the influx of low-priced imports or through exports to other countries, with negative effects on public health. It is important to ensure that the tobacco industry is not the beneficiaries of such rules.
Overall, the Protocol to Eliminate Illicit Trade in Tobacco Products provides an excellent framework for the most important measures that governments need to take.
3. What measures are needed to push for increased tobacco taxes, given that countries' contexts are not always the same?
It's mainly political will to increase taxes. In most countries, governments are struggling to raise sufficient revenues, particularly to fund health and education. Tobacco taxes offer one way to help (though they alone won't solve the problem).
Taxing other unhealthy products, alongside tobacco, is also great strategy to raise much-needed revenues. We work actively particularly on alcohol taxes and to a lesser extent on SSB taxes, given that alcohol taxes have a greater public health effect (though we believe in and support SSB taxes).
There is plenty of strong research in every region that proponents of tax reform can use. There is also a lot of assistance available including through our Economics for Health team, the Tabaconomia team in Latin America, the OECD, the World Bank tax team and the WHO’s Fiscal and Legal Measures for Health team.
4. Some countries are leaning towards earmarked taxes. What strategies should be adopted in this context to ensure an increase in the tobacco control budget, following the tax increase?
Many finance ministries prefer NOT to earmark because it creates inflexibilities in their tax system. However, "soft earmarks" that allocate some of the new tax revenue to large important programmes can be useful, such as funding Universal Health Care for the lowest socioeconomic groups (this is what the Philippines did).
Following a tax increase, it is essential to monitor prices and ensure they rise as expected following the tax adjustment. At the same time, it is necessary to track consumption and observe how it changes in response to price fluctuations. This should provide you with useful information regarding the rate to apply and whether a further substantial increase might be needed. Concurrently, you must ensure the security of your tobacco supply chain. It is advisable to invest in the key components of the Protocol to Eliminate Illicit Trade in Tobacco Products.
5. What are your views on the new products and strategies being developed by the tobacco industry, particularly those aimed at counteracting efforts to reduce tobacco consumption? How do you see these developments affecting tobacco-control efforts in developing countries? I am concerned that developing countries may not be spared from the challenges posed by these emerging products and industry strategies.
We are working hard on this very issue, and we have real concerns about these emerging products. To be clear: we recommend taxing them. And taxing them sufficiently to significantly drive down youth consumption. We are discussing these novel products with a number of governments to determine the best strategy. At this time, we are generally getting the best results with hybrid systems that have both a specific tax per millilitre of liquid (this drives up the prices of the cheapest products, which are the ones that kids mostly use) and an additional ad valorem tax. Again, we carefully monitor the market and prices to make sure the taxes are having the effects on consumption that we want/need (especially youth initiation). That said, we have had modest success in some tax jurisdictions with ad valorem-only taxes. This is relevant to countries without capacity to use specific taxes. We think this is far better than not having any excise tax!