The Effectiveness of Tobacco Tax & Price Policies for Tobacco Control Frank J. Chaloupka University of Illinois at Chicago The 10 th Asia Pacific Conference on Tobacco or Health Symposium 11 Makuhari Messe, Chiba, Japan, August 20, 2013 1
Tobacco Taxation We [] have a package of six policy measures, known as MPOWER, that can help countries implement the provisions in the Convention. All six measures have a proven ability to reduce tobacco use in any resource setting. But tobacco taxes are by far the most effective. Director General Dr. Margaret Chan, WHO 2
Tobacco Taxes and Tobacco Use Increases in tobacco excise taxes that increase prices result in a decline in overall tobacco use. 3
2010 Taiwanese Dollars per Pack Cigarette Sales, Million Sticks Taxes, Prices and Tobacco Use 47 Taiwan, 1998-2010 42,000 45 41,000 43 40,000 39,000 41 38,000 39 37,000 37 36,000 35 35,000 33 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 34,000 Source: Euromonitor, 2011 Price (2010 Dollars) Sales (million sticks) 4
Tobacco Taxes and Prevalence of Tobacco Use Increases in tobacco excise taxes that increase prices reduce the prevalence of adult tobacco use. 5
Prevalence Price Aug 2011 dollars) Taxes, Prices and Adult Smoking Prevalence United States, 1970-2010 $5.50 35 $5.00 $4.50 31 $4.00 27 $3.50 $3.00 23 $2.50 $2.00 19 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 Year $1.50 Prevalence Price Source: Tax Burden on Tobacco, 2011, National Health Interview Survey, and author s calculations 6
Tobacco Taxes and Cessation Increases in tobacco excise taxes that increase prices induce current tobacco users to quit. 7
% Ever Smokers Who Have Quit 70 Cigarette Prices and Cessation US States & DC, 2009 65 y = 0.0283x + 43.083 R² = 0.371 60 55 50 45 350 400 450 500 550 600 650 700 750 800 850 Average price (in cents) Source: BRFSS, Tax Burden on Tobacco, 2010, and author s calculations
Tobacco Taxes and Youth Tobacco Use Increases in tobacco excise taxes that increase prices reduce the initiation and uptake of tobacco use among young people, with a greater impact on the transition to regular use. 9
Tobacco Taxes and Youth Tobacco Use Tobacco use among young people responds more to changes in tobacco product taxes and prices than does tobacco use among adults. 10
Price per pack (8/11 dollars) Smoking Prevalence Cigarette Price and Youth Smoking Prevalence United States, 1991-2011 36 $5.50 31 $4.75 26 21 $4.00 16 $3.25 11 $2.50 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Year 6 Cigarette Price 12th grade prevalence 10th grade prevalence 8th grade prevalence Source: MTF, Tax Burden on Tobacco, 2011, and author s calculations 11
Tobacco Taxes and LMICs The demand for tobacco products in low-income countries is at least as responsive to price as is the demand for tobacco products in high-income countries. 12
Tobacco Taxes and Low- Income Populations In many countries, tobacco use among lower-income populations is more responsive to tax and price increases than is tobacco use among higher-income populations. 13
Who Pays & Who Benefits Source: Jha, et al, 2012
Tobacco Taxes and Population Health Tobacco tax increases that increase prices improve population health 15
Number/adult/day and death rates Price (% relative to 1980) France: smoking, tax and male lung cancer, 1980-2010 6.0 # cigarettes/adult/day 5.5 300 5.0 4.5 Lung cancer death rates per 100,000 (divided by four): men age 35-44 250 4.0 3.5 200 3.0 2.5 2.0 Relative price 150 100 1.5 1.0 1980 1985 1990 1995 2000 2005 2010 50 Year Source: Jha, et al., in progress
Tobacco Tax Structure Higher and more uniform specific tobacco excise taxes result in higher tobacco product prices and increase the effectiveness of taxation policies in reducing tobacco use. 17
Cigarette Taxation Globally Income Group Only specific Excise System on Cigarettes Only ad valorem Both specific and ad valorem No Excise Total countries * High 11 2 25 7 45 Upper 16 11 9 6 42 Middle Lower 18 19 12 3 52 Middle Low 10 28 2 3 43 By Region AFRO 14 29 1 2 46 AMRO 13 16 2 3 34 EMRO 1 7 5 7 20 EURO 10 3 36 0 49 SEARO 3 2 2 1 8 WPRO 14 3 2 6 25 All Countries 55 60 48 19 182 * Countries for which data are available; Source: WHO calculations using WHO GTCR 2009 data 18
Standard Deviation, Prices of Top 5 Brands Cigarette Prices & Tax Structure 0.60 0.50 0.40 0.30 0.20 0.10 0.00 Source: Chaloupka, et al., forthcoming. 19
Tobacco Taxes and Affordability To achieve public health goals, tobacco tax and price increases need to reduce the affordability of tobacco products. 20
Cigarette Affordability 16 ITC Countries over Time Source: ITC Project, 2012 21
Tobacco Taxes and Tobacco Tax Revenues Tobacco tax increases increase tobacco tax revenues. 22
Tobacco Taxes, Sales & Revenues WHO TaXSiM model forecasts of tax changes announced in 2012 Philippines (median est.) % change in average excise per pack % change in average price per pack % change in annual sales volume % change in annual excise revenue 201% 70% -48% 58% Senegal 57% 50% -22% 23% India (bidi cigarettes) 25% 1% -1% 5% Thailand 21% 14% -6% 12% India (white cigarettes) 20% 18% -9% 9% Fiji 10% 4% -3% 7% Papua New Guinea 10% 3% -3% 7% Bangladesh 8% 5% -2% 6% Indonesia 5% 3% -1% 4% Source: WHO 2013 23
Tax Avoidance & Tax Evasion Tax avoidance and tax evasion reduce, but do not eliminate, the public health and revenue impact of tobacco tax increases. 24
Curbing Tax Evasion A coordinated set of interventions that includes international collaborations, strengthened tax administration, increased enforcement, and swift, severe penalties reduces illicit trade in tobacco products 25
% of contraband cigarettes in duty paid sales Total tax as % of Most Popular Brand Price Cigarette Taxes and Illegal Cigarettes, Spain 1991-2008 Spain: Size of contraband cigarette market & total tax level on cigarette price 22.0% 17.0% 21.2% 17.7% 13.6% total tax incidence % of contraband 71.2% 71.4% 80% 77.6% 75% 70% 12.0% 71.7% 65% 7.0% 2.0% -3.0% 59.0% 1991 1992 1993 1994 1995 1996 1997 Source: WHO, unpublished data 2.7% 1998 1999 2000 2001 2002 2003 2004 1.1% 1.0% 2005 2006 2007 2008 60% 55% 50% 45%
Tobacco Taxes and Employment Tobacco tax increases do not increase unemployment. 27
Conclusions Increases in tobacco taxes lead to significant reductions in tobacco use and its consequences while at the same time raising new tax revenues Simple tax structures that include regular increases in taxes beyond inflation and income growth are more effective in achieving public health and revenue objectives of tobacco taxes Arguments about economic consequences of higher tobacco taxes are either false or significantly overstated 28
For more information: fjc@uic.edu www.tobacconomics.org (coming soon)