UICC Tobacco Control Fact Sheet 4

Tobacco Taxation and Price Policies

Summary

The price of tobacco is perhaps the single largest factor in influencing short term consumption patterns. Even more important, price has been shown to play a very large role in determining how many young people will start smoking, thus profoundly influencing long-term consumption trends. The decisions governments make with respect to tobacco taxation are never "neutral", as anything that increases or decreases the affordability of tobacco will be reflected in total consumption. The UICC recommends that taxes on all tobacco products be increased regularly and significantly.

Tobacco taxation

The International Union Against Cancer believes that taxation policy must play an integral part in any comprehensive approach to tobacco control.

Tobacco is a uniquely dangerous product. It is the only legally available consumer product which kills when used precisely as intended by the manufacturer. Governments should use all the tools at their disposal to reduce the consumption of this product.

Experience in many countries has demonstrated that price rises are an extremely effective tool in reducing tobacco consumption. The precise effect will vary, but, on average, a ten per cent price in-crease results in a four per cent fall in consumption.

Research in North America suggests that teenagers are particularly affected by price with a ten per cent real increase in price cutting their consumption by more than ten per cent, and deterring many from ever starting to smoke. This is a particularly important result since if people reach their twenties without becoming smokers they are very unlikely ever to smoke. It is also important because it is clear that many teenagers ignore health warnings, start smoking unaware that it is an addictive habit and that it is difficult to enforce laws on sales to minors.

Higher tobacco taxes are also easy to implement. Most governments already impose some tax on tobacco - so there is no need to develop new, complex systems to increase taxes.

Higher tobacco taxes also raise government revenue. Some of the proceeds of higher tobacco taxes can be used to fund other parts of the government's overall tobacco control effort.

What does a pro-health tobacco tax policy look like?

The key elements of an effective policy are:

• Significant increases in the tax on tobacco. To be significant, the tax increase should raise the price of tobacco by more than the growth in earnings, to make tobacco less affordable.
• Regular increases in the tax on tobacco.
  A significant tax increase may reduce consumption straight after its introduction. But, over time, inflation and rising living standards will erode the effect. So tax increases must be regular to avoid that. One way to do this is to provide for automatic increases which keep pace at least with increases in the consumer price index. In some European countries tobacco has been taken out of the consumer price index. It is a useful procedure to counter governments' views that increasing taxation would be reflected in the cost-of-living index. The European Community "Europe Against Cancer" expert committee has also made this recommendation.
• A structure of tobacco taxes that reinforces health policy objectives. That means having a high specific element in the duty to reduce the scope for cheap cigarettes at the lower end of the market (a specific tax set in terms of a cash amount per cigarette). The structure should minimize loopholes, e.g. by taxing roll-your-own tobacco on the same basis as cigarettes to avoid giving people a price incentive to switch rather than quit.
• Effective anti-smuggling controls. The size of the risk illegal imports pose to a country will depend on its circumstances. Counter-measures such as distinctive markings may be useful. Ultimately the only effective way to prevent one country's health policy being undermined by another's is for all countries to levy high tobacco taxes.

Why are tobacco taxes not more widely used as part of tobacco control strategies?

There has been a reluctance on the part of health groups to advocate use of tobacco taxes and a reluctance in some cases on the part of governments to act. Where health groups have strongly advocated higher taxes, as for instance in Canada, governments have shown themselves to be responsive and there has been a wide measure of public support.

The UICC believes that most of the arguments advanced against raising taxes are weak.

The industry likes to argue that higher taxes are regressive because they hit the poorer members of society harder. But it is the industry that chooses to target poor consumers, who are often less responsive to health messages than the better educated and better off. So the industry's alleged concern is hypocritical at best. If a government is concerned at the impact of higher tobacco taxes on the poor, the answer is not to provide the poor with cheap tobacco - hardly a benefit - but to use some of the proceeds from higher taxes to compensate the poor. Failure to raise tobacco taxes out of a misguided concern for the welfare of the poor simply makes it easier for the industry to condemn another generation to addiction to tobacco.

Other favoured arguments against higher tobacco taxes are that they will hit the incomes of tobacco growers or employment in tobacco manufacturing. Low tobacco taxes are an incredibly cost-ineffective form of industrial or agricultural support. If these are real concerns, it is much more cost-effective to raise tobacco taxes and to provide direct income support for those whose livelihoods depend on tobacco. The beneficiaries of lower tobacco taxes are not the tobacco grower or tobacco worker, but the shareholders - often overseas - the tobacco transnationals.

The UICC also does not believe that there is any force in the concern that higher tobacco taxes will make governments dependent on tax revenues and hence reluctant to adopt health measures. There is no evidence for this. The governments with the highest tobacco taxes tend also to be those with the most stringent anti-tobacco laws. Moreover, the reduction in consumption that higher taxes can bring about makes it easier for other policies to be introduced - for example on workplace smoking. The fear of co-option of government through higher taxes seems misplaced - demonstrated by the fact that the industry itself recognizes that higher tobacco taxes are to be opposed vehemently.

A final argument is that taxes should not be used for social engineering. But this is a spurious argument. Letting tobacco become more affordable by failing to raise taxes is social engineering every bit as much as raising the real price by developing a health conscious tax policy.

UICC Recommendation

Regular and significant tobacco tax increases are an essential component of any effective tobacco control strategy, and it is desirable to remove the cost of tobacco products from the consumer price index used as a measure of financial inflation.

March 1993

Tobacco and Cancer Programme International Union Against Cancer 3, Rue du Conseil-Général, 1205 Geneva, Switzerland Tel: (4122) 809 1830, Fax: (4122) 809 1810 E-mail: tobacco-control@globalink.org | Tobacco and Cancer Programme