Best Practices in Tobacco Taxation
Frank J. Chaloupka, University of Illinois at Chicago
2nd Regional Policy Dialogue on Tobacco Economics in Southeastern Europe
12 December 2019, Skopje, North Macedonia
Effectiveness of Tobacco Taxes
Chapter 4, Conclusion 1:
A substantial body of
research, which has
accumulated over many
decades and from many
countries, shows that
significantly increasing the
excise tax and price of
tobacco products is the
single most consistently
effective tool for reducing
tobacco use.
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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.”
Recommendations
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Excise systems for cigarettes2018
Source: WHO 2019 and author’s calculations
Number of
Countries
(global)
184Total covered
65Specific excise only
41Ad valorem excise only
63Mixture of both excises
15No Excise
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Excise systems on cigarettes
Source: WHO 2015
# of countriesCountryBase of tiers
6 Bangladesh, Mozambique, Philippines, Belarus,
Indonesia, Pakistan Retail price
2Burkina Faso, Senegal High, standard and low end cigarettes
1ChinaProducer price
1 Indonesia Production volume
11
Armenia, Belarus, India, Nepal, Georgia, Kazakhstan,
Kyrgyzstan, Moldova, Papua New Guinea, Tajikistan,
Ukraine
filter/non filter
Type
3 Indonesia, India, Philippines hand/machine made
2 Indonesia, Myanmar kretek/white cigarette,
cheerot/cigarette
2 Andorra, Algeria
Tobacco content
(dark/blonde or
dark/light)
3 Brazil, Mozambique, Uganda soft/hard Packaging
4 India, Nepal, Hong Kong, Sri Lanka Cigarette length
2 Andorra, Uzbekistan Trade (domestic/imported)
2 Belize, New Zealand Weight (tobacco content in cigarette)
1 Fiji Leaf content (domestic/imported)
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Excise tax structure: Specific and mixed relying more on the specific component tend to lead to higher prices
5,91
5,46
4,57
4,254,08 3,98
2,172,70
2,262,09 2,02
0,00
Specific excise Mixed systemRelying more onspecific excise
Mixed system (all) Ad valorem excise Mixed systemRelying more on ad
valorem excise
No excise
Pri
ce a
nd
taxati
on
per
pack (
$P
PP
)
Retail price, PPP Other taxes, PPP Excise tax, PPP
Source: WHO 2017 GTCR data; unpublished figure.
Notes: Averages are weighted by WHO estimates of number of current cigarette smokers ages 15+ in each country in 2015; Prices are expressed in Purchasing
Power Parity (PPP) adjusted dollars or international dollars to account for differences in the purchasing power across countries. Based on prices as of July 2016 for
53 high-income, 100 middle-income and 27 low-income countries with data on prices of most sold brand, excise and other taxes, and PPP conversion factors.
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Source: Chaloupka, et al., 2014
0,00
0,10
0,20
0,30
0,40
0,50
0,60
Sta
nd
ard
Dev
iati
on
, P
rices o
f T
op
5 B
ran
ds
Excise tax structure: Simple specific and mixed relying more on specific tax to lead to less variable prices
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Excise tax structure: Specific and mixed relying more on the specific component tend to reduce price gaps
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$1,09$1,38$1,50$1,57
$1,84$1,86
$2,27$2,48
$2,93$3,05
$3,22$3,70
$4,37$4,51$4,63$4,75$4,77$4,85$4,97$5,09
$5,27$5,45
$5,75$5,93$5,97$6,06$6,11$6,15$6,16
$6,35$6,35
$6,56$6,66$6,69$6,70$6,81$6,91$6,98
$7,17$7,35
$7,60$7,78
$8,38$8,48
$8,75$9,70
$10,44$11,03
$12,25$18,81
$4,55$5,99
$3,50$5,13
$3,94$3,58
$5,44$6,02$6,16
$3,90$4,46
$7,03$6,83
$7,90$7,41
$8,54$6,02$5,99
$7,81$6,73
$6,59$7,49
$8,33$8,26
$9,35$8,91
$7,35$7,54$7,70
$7,94$8,19$8,20
$7,85$8,03
$8,25$9,90
$8,22$8,53
$8,16$9,51
$8,87$9,40
$9,58$9,52$9,65
$10,08$13,15
$16,62$14,95
$18,81
$0 $5 $10 $15 $20
GeorgiaAzerbaijan
ArmeniaBelarus
Republic of MoldovaKyrgyzstan
TajikistanUzbekistan
Russian FederationKazakhstan
UkraineNorth Macedonia
SwitzerlandCroatiaAlbaniaTurkey
LuxembourgDenmark
SerbiaSlovenia
AustriaItaly
Bosnia and HerzegovinaSlovakia
MontenegroEstoniaSweden
LatviaSpain
CzechiaCyprus
PortugalGreece
BelgiumGermany
IsraelLithuaniaBulgariaFinlandPoland
NetherlandsHungaryRomania
MaltaIcelandFranceNorway
United Kingdom of Great Britain and Northern IrelandIreland
Turkmenistan
EUROPE: Prices of pack of premium brand and cheapest brand of cigarettes, international dollars, 2018
Cheapest brand Premium brand
Source: WHO 2019
Recommendations
Section 2 – Relationship between tobacco taxes,
price and public health:
“When establishing or increasing their national levels of
taxation Parties should take into account – among other
things – both price elasticity and income elasticity of
demand, as well as inflation and changes in household
income, to make tobacco products less affordable
over time in order to reduce consumption and
prevalence. Therefore, Parties should consider having
regular adjustment processes or procedures for periodic
revaluation of tobacco tax levels.”
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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.”
Recommendations
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Source: WHO 2019
Change in AffordabilityEurope, 2008-2018, Annual Average
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-5,00%
0,00%
5,00%
10,00%
15,00%
Arm
en
ia
Ge
org
ia
Ma
lta
Ire
lan
d
Nort
h M
ace
do
nia
Ge
rma
ny
Bu
lga
ria
Sw
ed
en
Uzbe
kis
tan
Latv
ia
Den
ma
rk
Slo
va
kia
Ice
lan
d
Au
str
ia
Sw
itze
rlan
d
Alb
an
ia
Kyrg
yzsta
n
Unite
d K
ing
do
m
Tu
rke
y
Fra
nce
Be
lgiu
m
Neth
erl
an
ds
Czech
ia
Ta
jikis
tan
Rom
an
ia
Norw
ay
Luxe
mb
ourg
Po
rtug
al
Esto
nia
Cro
atia
Lith
uan
ia
Ka
za
kh
sta
n
Slo
ve
nia
Isra
el
Italy
Fin
land
Hun
ga
ry
Rep
ub
lic o
f M
old
ova
Be
laru
s
Azerb
aija
n
Po
lan
d
Sp
ain
Cypru
s
Gre
ece
Bo
sn
ia a
nd H
erz
eg
ovin
a
Se
rbia
Ukra
ine
Russia
n F
ed
era
tio
n
Mo
nte
ne
gro
Tu
rkm
en
ista
n
Affordability & Cigarette SmokingPrevalence, Indonesia, 2001-2014
Sources: Euromonitor; EIU; World Bank, and authors’ calculations
30,00
31,00
32,00
33,00
34,00
35,00
36,00
0,035
0,045
0,055
0,065
0,075
0,085
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Adult S
mokin
g P
revale
nce
Rela
tive I
ncom
e P
rice,
100 p
acks
Affordability Smoking Prevalence
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Text of Guidelines
“As recognized in Guiding Principle 1.1, Parties have the
sovereign right to determine and establish their taxation
policies, including the level of tax rates to apply. There is no
single optimal level of tobacco taxes that applies to all countries
because of differences in tax systems, in geographical and
economic circumstances, and in national public health and fiscal
objectives. In setting tobacco tax levels, consideration could be
given to final retail prices rather than individual tax rates. In this
regard, WHO had made recommendations on the share of
excise taxes in the retail prices of tobacco products1.”
1 WHO technical manual on tobacco tax administration. Geneva, World
Health Organization, 2010. (Recommends that tobacco excise taxes account
for at least 70% of the retail prices for tobacco products).
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Average Price of the Most Sold Brand & Excise Tax per pack, and Excise Tax Share
Source: WHO 2019
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Source: WHO 2019www.tobacconomics.org | @tobacconomics
87,4%83,8%83,6%
82,5%81,4%81,4%81,3%81,2%
80,0%79,4%79,4%79,3%79,2%78,8%78,4%78,2%
77,6%77,3%77,1%77,0%76,8%
76,0%75,9%75,4%75,3%
74,7%74,4%74,2%73,8%
72,3%71,8%71,7%71,2%
68,6%68,4%68,4%68,3%
67,2%64,0%
60,3%58,0%57,7%
55,5%52,4%
50,9%48,6%
44,7%42,3%
38,1%35,3%
32,4%
0% 25% 50% 75% 100%
FinlandBosnia and Herzegovina
BulgariaFranceTurkey
MontenegroNorth Macedonia
GreeceLatvia
United Kingdom of Great Britain and Northern IrelandEstoniaAndorraSlovenia
CroatiaIrelandSpainMalta
SerbiaSlovakiaBelgiumPoland
ItalyIsrael
CzechiaAustria
UkraineCyprus
DenmarkLithuaniaHungary
NetherlandsPortugalGeorgia
RomaniaSweden
GermanyLuxembourg
AlbaniaNorway
SwitzerlandRepublic of MoldovaRussian Federation
IcelandKazakhstan
BelarusKyrgyzstanUzbekistan
TajikistanArmenia
AzerbaijanTurkmenistan
% excise tax
Data not reported/not available for: Monaco and San Marino.
Share of Total &Excise Tax per PackMost Sold Brand, Europe, 2018
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.”
Recommendations
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Price & Other Tobacco Product Use
• Consistent evidence on own-price effects
– Generally find demand for OTP and vaping products more
responsive to price than cigarette demand
• Mixed evidence on substitution among various
products
– Greater substitution among more similar products (e.g.
cigarettes and other combustibles)
– Some evidence of substitution between cigarettes and
vaping products
– Weak evidence of complementarity between combustibles
and other non-combustibles
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Cigarette & Roll-Your-Own Tobacco Taxesas Percent of Price, Europe, 2018
Source: WHO 2019www.tobacconomics.org | @tobacconomics
0,0%
10,0%
20,0%
30,0%
40,0%
50,0%
60,0%
70,0%
80,0%
90,0%
RYO Tax Share Cigarette Tax Share
Section 4 – Tax administration
“Parties should ensure that transparent licence or equivalent approval or
control systems are in place.”
“Parties are urged to adopt and implement measures and systems of storage
and production warehouses to facilitate excise controls on tobacco
products.”
“In order to reduce the complexity of tax collection systems, excise taxes
should be imposed at the point of manufacture, importation or release for
consumption from the storage or production warehouses.”
“Tax payments should be required by law to be remitted at fixed intervals or on
a fixed date each month and should ideally include reporting of production
and/or sales volumes, and price by brands, taxes due and paid, and may
include volumes of raw material inputs.”
“Tax authorities should also allow for the public disclosure of the information
contained within the reports, through the available media, including those
online, taking into account confidentiality rules in accordance with national law.”
Recommendations
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Section 4 – Tax administration
“In anticipation of tax increases Parties should consider
imposing effective anti-forestalling measures.”
“Where appropriate, Parties should consider requiring the
application of fiscal markings to increase compliance with
tax laws.”
“Parties should clearly designate and grant appropriate
powers to tax enforcement authorities.”
“Parties should also provide for information sharing among
enforcement agencies in accordance with national law.”
“In order to deter non-compliance with tax laws, Parties
should provide for an appropriate range of penalties.”
Recommendations
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Philippines Experience Stockpiling
Source: Ross & Tesche, 2015
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California’s Encrypted Cigarette Tax Stamps
2005-2010
2011-present
Cigarette Tax Stamps Sold Projected and actual, California, 2000 - 2013
800.000
900.000
1.000.000
1.100.000
1.200.000
1.300.000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Cig
arr
ett
e S
tam
ps S
old
(in
th
ou
san
ds)
Actual Expected 3% Decline
2010 Stamp2010 Stamp
2005 Stamp
Source: Chaloupka, et al., 2015
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Combating Illicit Tobacco Trade• Illicit trade protocol to the WHO FCTC
– Adopted November 2012; entered into force
September 2018
– Strong tax administration
• Prominent, high-tech tax stamps and other pack markings
• Licensing of manufacturers, exporters, distributors, retailers
• Export bonds
• Unique identification codes on packages
– Better enforcement
• Increased resources
• Focus on large scale smuggling
– Swift, severe penalties
– Multilateral/intersectoral cooperation
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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 tobacco-control 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.”
Recommendations
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Taxes & Tax Revenues, South Africa
Sources: Blecher & Van Walbeek, 2014
0
2
4
6
8
10
12
0
2
4
6
8
10
12
19
61
19
66
19
71
19
76
19
81
19
86
19
91
19
96
20
01
20
06
20
11
Exci
se r
eve
nu
e (
bill
ion
s, c
on
stan
t 2
01
2 R
and
s)
Exci
se t
ax p
er
pac
k (c
on
stan
t 2
01
2 R
and
s)
Excise Tax per Pack and Excise Tax RevenueSouth Africa, Inflation Adjusted, 1961-2012
Excise tax Excise revenue
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Cigarette Tax and RevenueUkraine: 2008-2015
Average excise rate for cigarettes – increased 10-fold
Cigarette Tax Revenue – increased 6-fold
Source: Syvak and Krasovsky, 2017
3,5
5,5
7,5
9,5
11,5
13,5
15,5
17,5
19,5
21,5
25
75
125
175
225
275
325
2008 2009 2010 2011 2012 2013 2014 2015
Tax R
evenues,
Bill
ions
Cig
are
tte E
xcis
e T
ax, 1000 S
ticks
Average excise per 1000 cigarettes, UAH Tobacco excise revenue, bln UAH
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Source: ImpacTeen Project, UIC; YRBS
19
21
23
25
27
29
31
33
35
37
$0
$200
$400
$600
$800
$1.000
1991 1994 1997 2000 2003 2006 2009
Percen
t C
urren
t S
mo
kin
g
To
tal
Fu
nd
ing
$M
illio
ns (
FY
10
dollars)
Year
State Tobacco Control ProgramFunding and Youth Smoking Prevalence,
United States, 1991-2009
total state program funding high school prevalence
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Tobacco Taxes and Revenues
•The Addis Ababa Action Agenda states:
“… price and tax measures on tobacco can be an
effective and important means to reduce tobacco
consumption and health-care costs, and represent a
revenue stream for financing development in many
countries”
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Section 6 – Tax-Free/Duty-Free Sales
“Parties should consider prohibiting or
restricting the sale to and/or importation by
international travellers, of tax-free or duty-free
tobacco products.”
Recommendations
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Summary
Significant tobacco tax increases most
effective way to reduce tobacco use
• Simple, uniform tax systems more effective in
promoting public health and raising revenues
• Need to increase taxes to reduce affordability
• Strong tax administration important for
maximizing health and revenue impact
Summary
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