The Economics of Tobacco Control and Tobacco Taxation: Challenges & Opportunities for a Tobacco Free Turkey

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1 The Economics of Tobacco Control and Tobacco Taxation: Challenges & Opportunities for a Tobacco Free Turkey Ayda A. Yürekli, WHO, on behalf of author team Ankara, December 23, 2010 With funding from the Bloomberg Philanthropies and Bill and Melinda Gates Foundation

2 Prevalence of Adult Tobacco Smoking Daily Less than daily Quit already Never smoked Icme orani (%) Total Men Women Total Men Women Total Men Women TURKEY URBAN RURAL Source: Global Adult Tobacco Survey; data for 2008; prevalence rates rounded to nearest full decimal

3 CURRENT TOBACCO SMOKING AMONG MOST PREVALENT COUNTRIES IN 2008/09 After Russia, Turkey has the second highest prevalence rate Percentage (%) Source: MoH Turkey, and Global Adult Tobacco Surveys 2010

4 CURRENT TOBACCO SMOKING BY GENDER Turkey is among countries with the highest prevalence rate by gender Russian China Ukraine Turkey Philippines Viet Nam Thailand Bangladesh Egypt Poland Uruguay Mexico India Brazil MALE Poland Russian Uruguay Turkey Brazil Ukraine Philippines Mexico Thailand India China Bangladesh Viet Nam Egypt Percentage (%) FEMALE Source: Global Adult Tobacco Surveys, CDC 2010

5 Average number of cigarettes smoked per day Turkey leads the countries with the most smoked cigarettes a day by gender Turkey Egypt Russian Poland Ukraine Uruguay China Vietnam Thailand Philippines Mexico Bangladesh India MALE Poland Turkey China Russian Egypt Uruguay Ukraine Vietnam Thailand Mexico India Philippines Banglad FEMALE Number of Cigarettes/Day Source: Global Adult Tobacco Surveys, CDC 2010

6 KNOWLEDGE OF SMOKING CAUSING LUNG CANCER Percentage (%) Source: Global Adult Tobacco Surveys, CDC 2010

7 KNOWLEDGE OF SMOKING CAUSING HEART ATTACKS Percentage (%) Source: Global Adult Tobacco Surveys, CDC 2010

8 DESIRE TO QUIT SMOKING IS STILL LOW Only <30% want to quit in Turkey Percentage (%) Thinking to quit within next 12 months Source: Global Adult Tobacco Surveys, CDC 2010

9 Youth Tobacco Use 8.4% prevalence of tobacco use among 13 to 15 year old students 9.4% cigarette smoking prevalence among boys; 13 cigarettes per day 3.5% cigarette smoking prevalence among girls; 11 cigarettes per day Rising over time - from 3.5% in 1996 to 6% in 2003 Almost 2/3of young Turkish smokers want to quit Source: Turkish Global Youth Tobacco Survey, 2003

10 Cigarette Consumption, Total Packs/capita Total consumption (10 million) pieces Source: Author's calculation by data from ERC Consumption/packs per capita

11 Burden of Disease Attributable to Smoking, 2003 Proportion of Disease Attributed Attributable Attributable Attributable deaths YLL DALYs DALYs Cardiovascular diseases COPD Lung cancer Other cancers Other respiratory diseases Other Total Source: Burden of Disease Study by Ministry of Health Turkey 2003

12 Projected Smokers and Deaths Caused by Smoking, Number of smokers (millions) in left scale Number of deaths (thousands) in right scale 165 Deaths as prevalence increases Deaths at current prevalence rate Deaths as prevalence decreases Smokers as prevalence increases Smokers at current prevalence rate Smokers as prevalence decreases Source: Yürekli, et al., 2010

13 How to Reduce Tobacco Use Higher cigarette taxes Non-price measures: Better consumer information: strong warning labels, counter-advertising & disseminate research findings Comprehensive ban on advertising and promotion Restrict/ban smoking in public and work places Cessation help (Nicotine Replacement Therapy)

14 Cigarette Demand in Turkey Real GDP/capita (00 YTL) & Per capita consumption/pack Consumption/pack/ capita Real GDP/capita (00) Real price/pack YTL Real Price/pack YTL Source: Yürekli, et al., 2010

15 What level of Taxation on Cigarettes? Complex Question: Depends on The degree on which a country wishes to reduce cigarette consumption Tax rates in neighboring countries The ability and willingness of the tax authority to enforce compliance

16 Turkey has chosen public health and higher revenues January 2010: Specific tax increased to 2.65 TL/pack Ad valorem tax increased to 63% of retail price Tobacco fund tax eliminated 14 th highest excise tax as share of price globally 2 nd highest among Bloomberg Initiative countries

17 Cigarette Taxes and Prices Excise as % of RP Total tax as % of Retail Price Retail Price/pack YTL % 70.6% 71.6% 56.3% 75.1% 75.4% 73.5% 73.4% 74.1% 59.8% 60.2% 58.2% 58.8% 58.1% 63.4% 78.70% * 2010** Source: Yürekli, et al., 2010

18 Cigarette Taxes & Revenues Excise (OTV) Revenue (billion TL) Revenue Billion TL & Tax Paid Sales Billion Packs Tax paid sales (billion packs) Retail Price/pack TL * 2010** Average Retail Price/pack TL Source: Yürekli, et al., 2010

19 Turkey has still more to go: Higher tax rate but relatively lower retail price Retail Price/pack Euro Total tax as % of retail price Total tax as % of retail price 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 89% % 3.20 Bulgaria Poland Greece 83% % 80% % Slovakia Romania Estonia Latvia France Portugal Hungary Ireland Turkey Finland % % Czech Rep Spain Italy Lithuania UK % % 74% % % 2.82 Belgium Malta Slovenia Denmark Germany Austria Netherlands Cyprus Sweden Source: Authors' estimation from EU excise taxes for 2010 on cigarettes Retail price/pack Euro

20 Tax revenues can increase more as more lives will be saved Simulation Analysis Assumptions: Total price elasticity: Prevalence elasticity: Youth prevalence elasticity: Premature deaths due to smoking: 40% After quitting, probability of reduced premature deaths: 70% Source: Yürekli, et al. 2010

21 Source: Yürekli, et al Simulation Analysis Sales & Revenues 2009 EFFECTIVE JAN 2010 GOING FORWARD Specific: 2.05YT Ad valorem 58% Specific: 2.65TL Ad valorem 63% Specific: 3.10TL Ad valorem 65% Cigarettes Sales (Million Packs) 5, ,263 % change in sales -12.2% -19.6% Average Retail Price/pack* % change in Price 29% 48% Average Total tax/pack** Total Tax Incidence (%)*** Excise tax/pack** Excise Incidence (%)*** Total revenue (Million YTL) 15,935 19,223 20,667 % change in total revenue 20.6% 29.7% Excise revenue (Million YTL) 12,654 15,496 16,757 % change in excise revenue 22.5% 32.4%

22 Simulation Analysis - Sales & Revenues with Increased Smuggling GOING FORWARD Specific: 2.05TL Ad valorem 58% Specific: 2.65YTL: Ad valorem 63% Specific: 3.10YTL: Ad valorem 65% Percent Increase in Revenues, no smuggling Base 20.9% 29.7% Percent Increase in Revenues, increased smuggling Base 16.6% 22.0% Source: Yürekli, et al. 2010

23 Simulation Analysis Smokers & Deaths 2009 EFFECTIVE JAN 2010 Specific: 2.05YTL Specific: 2.65TL Ad valorem 58% Ad valorem 63% GOING FORWARD Specific: 3.10YTL: Ad valorem 65% Adult Smokers (millions) Deaths Caused by Smoking among Current Smokers (millions) Reduction in Number of Adult Smokers 590, ,804 Reduction in Deaths Caused by Smoking among Adults 165, ,385 Future Smokers among Current Youth Cohort (millions) Deaths Caused by Smoking among Future Smokers (millions) Reduction in Number of Future Smokers 437, ,994 (thousands) Reduction in Deaths among Future Smokers 175, ,398 Total Reduction in Deaths Caused by Smoking 340, ,783 Source: Yürekli, et al. 2010

24 Recommendations Increase the specific tax periodically and ensure that it be automatically adjusted to keep pace with inflation. Further, the rate of price increase should be higher than the inflation rate in line with best practice.

25 Recommendations Increase excise taxes over time so that they account for at least 70 % of retail cigarette prices. Given the inelasticity of cigarette demand, a tax increase of this magnitude will increase government revenues from cigarettes while at the same time encouraging many adult smokers to quit and preventing numerous youth from taking up smoking, reducing the health and economic burden caused by smoking in Turkey.

26 Recommendations Raise revenues through excise tax increases rather than relying on negotiations with cigarette manufacturers to increase the prices of their brands.

27 Recommendations Consider dedicating a portion of the increased tobacco tax revenues for financing the health care system and supporting tobacco control programs. For the recommended tax increase, 10 % of the resulting excise tax revenues would cover about 5.6 % of total public health expenditures.

28 Recommendations Strengthen ongoing efforts to curb illicit trade in tobacco products. Reducing illicit trade will maximize the revenue and health impact of cigarette excise tax increases. These efforts should include a prominent role for Turkey in ongoing negotiations of the FCTC protocol on illicit trade, in order to develop and strengthen regional partnerships for reducing contraband.

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