how tobacco taxes can expand fiscal space and benefit the poor

May 2014 | Issue 56 Regional | Health

• Withoutintervention,cigarettesmokingwilleventuallykillabout267millioncurrentandfuturesmokersinthePeople’sRepublicofChina,India,thePhilippines,Thailand,andVietNam.

• InthesefiveAsiancountries,increasingtobaccotaxesisapro-poormeasurethatcanreducethenumberofsmokersandsmoking-relateddeaths,andgeneratesubstantialnewrevenues.

• Useofthesenewrevenuestofinancehealthservicesforthepoorcanincreaseimpactsonbothpovertyandhealth.

How Tobacco Taxes Can Expand Fiscal Space and Benefit the Poor

ASIA’S DOUBLE HEALTH BURDEN

Infectiousdiseaseshavegenerallyplaguedpoorercountrieswhilenoncommunicablediseaseshaveaffectedrichernations.1InAsia—wheretwo-thirdsoftheglobalpopulationresideandhalfoftheworld’spoorarefound—thisscenarioischanging.Moreandmorepeoplearesufferingfromnoncommunicablediseases,oftenasaresultofunhealthylifestyles.2

Noncommunicablediseasesprogressmoreslowly,comparedwithmanycommunicablediseaseswhichtendtoaffectpeoplequickly.Thiscreatescomplexhealthneedsthatareexpensivetotreatandcanoverwhelmalreadystressedhealthcaresystems.Theproblemispredictedtobecomemoreacutewiththeagingofpopulations.

Whileitsnoncommunicablediseasesareontherise,Asiastillfacesanunfinishedagendaofcommunicablediseases—fromwater-borneillnessestomalaria.Withurbanpopulationslikelytoincreaseby20%–25%by2050,overcrowdinginbigcitiescouldalsoinflatetheriskofinfectiousdiseasetransmission.Increasedproductionofanimalsforfoodalsohasinherentrisksasmanyinfectiousdiseases,suchasinfluenza,arepassedfromanimalstohumans.

Hence,Asia’sdevelopingeconomiesandhealthauthoritiesconfrontagrowing,doubleburdenofever-presentandre-emerginginfectiousdiseases—withpossibleunexpectedoutbreaksofnewones—aswellasanexplosionofnoncommunicablediseases.3Publichealthexpertsadvocatethatthewarneedstobewagedontwofronts:publiceducationandpoliciesthatencouragehealthyeatingandhealthierlifestyles.Raisingtobaccotaxes,forone,isawin–winmeasure.

THE SCOURGE OF SMOKING

A Global Health Hazard.Smokingisaglobalhealthhazardandahugechallenge.AccordingtotheWorldHealthOrganization,anestimated5–6milliondeathswerecausedbytobaccousein2010.Mortalityisprojectedtonearlydoubleby2030.4About1billionpeoplewillbekilledfromsmokingthiscenturyunless

smokingcessationsignificantlyincreasesamongadults.Cessationsubstantiallyreducestherisksofsmoking.Thosewhoquitbeforetheageof40canachievedeathratesclosetononsmokers.5

Aggressive Tobacco Marketing.Whilecessationhasbecomeverycommoninhigh-incomecountries(e.g.,therearemoreex-smokersthancurrentsmokersintheUnitedKingdom),itisnotwidespreadinAsiancountries.Outoftheworld’s1.2billionsmokers,two-thirdsliveinjust15countries,6ofwhich—thePeople’sRepublicofChina(PRC),India,Indonesia,thePhilippines,Thailand,andVietNam—areinAsia.6Thisispartlyduetotheaggressivemarketingdonebytobaccocompanies.7Theindustryactivelymarketscigarettesand

___________________1Themainnoncommunicablediseasesarecardiovasculardiseases,diabetes,mentalillness,chronicrespiratorydiseases,andcancer.Theseareusuallycausedbyunbalanceddiets,physicalinactivity,alcoholordrugabuse,stress,inadequatesleep,andtobaccouse.Themaininfectiousdiseases—causedbybacteria,fungi,parasites,andviruses—arelowerrespiratoryinfections,HIV/AIDS,diarrhealdiseases,tuberculosis,andmalaria.2Diabetes,obesity,andexcessweightfromenergy-dense,big-portion,andfast-foodmealshavebecomeworrisomeinAsia.SeetheInternationalDiabetesFoundation’s2014IDF Diabetes Atlas atwww.idf.org/diabetesatlas3H5N1(avianinfluenza),anewregionalpandemic,struckasrecentlyas2009.4Mostmortalityamongsmokersisduetoneoplastic,vascular,respiratory,andotherdiseasesthatcanbecausedbysmoking.WorldHealthOrganization.2011.MPOWER:A Policy Package to Reverse the Tobacco Epidemic. Geneva.5PrabhatJha.2009.AvoidanceofWorldwideCancerMortalityandTotalMortalityfromSmoking.Nature Reviews:Cancer.Vol.9;pp.655–664.

6Overall,80%oftheworld’ssmokersarefromdevelopingcountries,withacommensurateratioofdeathsoccurringthere.7TheFederalTradeCommissionsayscigarettesarestillamongthemostheavilyadvertisedandpromotedproductsintheworld,withspendingreaching$8.6billionannuallyintheUnitedStatesalone.TheSoutheastAsiaTobaccoControlAlliancenotesthatsomegovernmentsindevelopingnationsevenrelyonfinancefromtobaccocompanies—under"corporatesocialresponsibility"programs—tocovercostsofpublicservices,includingschools.SeeSoutheastAsiaTobaccoControlAlliance.2014.Tobacco Industry Interference Index.Available:www.seatca.org/dmdocuments/SEATCA-TII%20Index%20Report.pdf

Increasingcigarettetaxescansignificantlyreducethenumberofcurrentandfuturesmokers.

PhotobyADB Photo Library

Without intervention, cigarette smoking will eventually

HighlightsKnowledge Showcases

©AsianDevelopmentBank PublicationStockNo.ARM146554-2

KNOWLEDGE CONTRIBUTORS

TheKnowledgeShowcasesSeries,aproductoftheKnowledgeSharingandServicesCenter,highlightsgoodpracticesandinnovativeideasfromADBtechnicalassistanceandotheroperationstopromotefurtherdiscussionandresearch.

www.adb.org/knowledgeshowcaseswww.adbknowledgeshowcases.org

TheAsianDevelopmentBank(ADB)isdedicatedtoreducingpovertyintheAsiaandPacificregion.

Theviewsexpressedinthispublicationarethoseoftheauthor(s)anddonotnecessarilyreflecttheviewsandpoliciesofADBoritsBoardofGovernorsorthegovernmentstheyrepresent.

Patricia Moser(pmoser@adb.org)isaleadhealthspecialistinADB’sRegionalandSustainableDevelopmentDepartment.

fightspublichealthpolicies(throughtrade,judicial,andlegislativeactions)topreventbansoncigaretteadvertising,taxincreases,andothereffectiveanti-tobaccomeasures.

Tackling the Scourge through Policies.However,allsixcountriesarepopulous,growingeconomies,wherecigarettesmokingisontherise.Afailuretoholddownthescourgeofsmokingwillhavemajorpublichealth—andhealthfinancing—implicationsforbothcurrentandfuturegenerations.Fortuitously,tacklingtheproblemoftobaccodoesnotdependonscientistsfindinganelusivevaccine:legislationthatmakescigarettespriciercandirectlyreducetobaccouse,especiallyamongpoorandyoungpeople.Policiessuchasbansonsmokinginpublicplaceshelptoo,andareneededasafullresponsetosustainreducedtobaccouse.8

TOBACCO TAXES: A WIN–WIN MEASURE FOR FISCAL SPACE AND HEALTH

In2012,theAsianDevelopmentBank(ADB)investigatedhowtobaccotaxesmightreduceconsumptionandsavelivesinfiveoftheAsianhigh-burdencountries.ThestudyfoundthatforthePRC,India,thePhilippines,Thailand,andVietNam,increasesincigaretteprices(intherangeof25%–100%)wouldeffectivelyreducethenumberofsmokersandthenumberofsmoking-relateddeaths.Additionally,theincreaseswouldgeneratesubstantialnewrevenues,atimelywindfallsinceportionsofthepopulationsofthesecountriesreceivefreeornearlyfreehealthcare,thecostsofwhichmustbemet.

Table: Percentage of Population with Free or Nearly Free Health Care—Selected Countries

Source:ADB.2011.BurdenofHealthCosts.InWho Will Pay for Asia’s Double Burden? Innovative Financing is Needed to Address an Unprecedented Burden of Communicable and Noncommunicable Diseases.Manila.www.adb.org/publications/who-will-pay-asias-double-burden-innovative-financing-needed-address-unprecedented-burd

Reduced Cigarette Consumption. Inthefivecountriescovered,increasingcigarettepricesby50%,whichcorrespondstoataxincreaseofabout70%–122%,wouldreducethenumberofcurrentandfuturesmokersbynearly67millionandreducetobaccodeathsby27million.9

Increased Revenues. A50%increaseincigarettepriceswillalso

generate$24billioninadditionalrevenueannually.Thiswouldmeana143%–178%increaseovereachcountry’scurrentcigarettetaxrevenue.Therevenueincrease,or“fiscalspace,”wouldaverage0.30%ofgrossdomesticproduct,withawiderangeof0.07%–2.52%.

A Pro-poor Measure. Thepoorestsocioeconomicgroupsineachcountrywillcarryonlyasmallpartoftheextrataxburden.Inreturn,theywillreapasubstantialproportionofthehealthbenefitsofreducedsmoking.Theratioofhealthbenefitsaccruedtothepoortotheextrataxesbornebythepoorwouldrangefrom1.4to9.5.

Clearly,largeincreasesinthetobaccotaxinallfivecountriesareunusuallyattractiveforpublichealthandpublicfinance,andarepro-poorintheirhealthbenefits.

Related Links• ADB.2011.Who Will Pay for Asia’s Double Burden? Innovative Finaning is Need-

ed to Address an Unprecedented Burden of Communicable and Noncommunicable Diseases.Manila.Available:www.adb.org/publications/who-will-pay-asias-double-burden-innovative-financing-needed-address-unprecedented-burd

• ADB.2012.Tobacco Taxes:A Win–Win Measure for Fiscal Space and Health.Ma-nila.Available:www.adb.org/publications/tobacco-taxes-win-win-measure-fiscal-space-and-health

• ADB.2014.AsianDevelopmentOutlook.www.adb.org/publications/series/asian-development-outlook

Olivier Serrat (oserrat@adb.org)isaprincipalknowledgemanagementspecialistinADB’sRegionalandSustainableDevelopmentDepartment.

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8Otherpoliciesincludecomprehensivebansontobaccoadvertisingandpromotion;betterpublicinformation,forexamplebymeansofmassmediacounteradvertisingandprominentlabelsoncigarettepacksaboutthehealthrisksoftobaccouseandthebenefitsofquitting;andhelpforsmokerswhowanttostopsmoking.9Thestudyreckonedthatintheabsenceofintervention,smokingwouldeventuallykillabout267millioncurrentandfuturecigarettesmokerswhoarealivetodayinthefivecountries.

ImageusedfortheWorldNoTobaccoDay,31May.Source:WorldHealthOrganizationwww.who.int/campaigns/no-tobacco-day/2014/poster/en/

China, The People' s Republic of 50± 70India 30± 40Indonesia 30± 40Philippines 30± 40Thailand >70Viet Nam 20± 30