1 Directions in Development Curbing the epidemic Governments and
the Economics of Tobacco Control The World Bank Health and
Economics: The Evidence Base Tobacco Control in LAC By Ayda A.
Yurekli, Ph.D World Bank PAHO/Caribbean Tobacco Control Meeting,
Jamaica, 2001 Slide 2 2 Global Number of Smokers (1990-1995
estimate) Source: WHO, 1995 Note: M = Millions MalesFemalesTotal
Developed Countries 200 M100 M300 M Developing Countries 700 M100
M800 M 900 M200 M1,100 M World Slide 3 3 Changing Global Burden of
Tobacco Pattern Large and growing number of deaths from smoking
World: Annual Tobacco deaths (in millions) 20002030 Developed 2 ~3
Developing ~2 ~7 World Total 4 ~10 u 1 in 2 of long-term smokers
killed by their addiction u 1/2 of deaths in middle age (35-69)
Slide 4 4 DALYs attributable to Diarrhea, HIV and Tobacco,
1990-2020 (baseline scenario) Source: Murray C and Lopez A. The
Global Burden of Disease. 1996. Slide 5 5 Changing Burden of
Disease Pattern in Developing Countries, 1990 and 2020 Slide 6 6
Slide 7 7 Slide 8 8 Global Share of the LAC Cigarette Consumption
Slide 9 9 Slide 10 10 Higher Prevalence Rate in LAC Slide 11 11
Global Youth Tobacco Survey, 1999 Ages 13-15 Slide 12 12 Heavy
Smokers in Latin America Slide 13 13 Heavier Smokers in Caribbean
Slide 14 14 Higher Prevalence Rate Among Health Professionals in
LAC Slide 15 15 Policymakers worry that the costs of tobacco
control would be high. Revenue loss: likely to have revenue gains a
10% tax increase would raise revenue by 7% Job loss: temporary,
minimal and gradual Possible smuggling: crack down on criminal
activity, not lower taxes Cost to individuals, especially the poor:
partially offset by lower consumption Slide 16 16 Which
interventions are effective? Measures to reduce demand Higher
cigarette taxes Non-price measures: consumer information, research,
cigarette advertising and promotion bans, warning labels and
restrictions on public smoking Increased access to nicotine
replacement (NRT) and other cessation therapies Slide 17 17 Which
interventions are ineffective at reducing consumption? Most
measures to reduce supply Prohibition Youth access restrictions
Crop substitution Trade restrictions Control of smuggling is the
only exception and it is the key supply-side measure Slide 18 18
Taxation is the most effective measure Higher taxes induce quitting
and prevent starting A 10% price increase reduces demand by: 4% in
high-income countries 8% in low or middle-income countries Young
people and the poor are the most price responsive Slide 19 19
Cigarette tax levels are lower in low and middle-income countries
Source: Authors calculations Slide 20 As Cigarette Price (Tax)
Rises Consumption Falls Slide 21 21 As cigarette price rises,
consumption falls South Africa Experience 1970-1989 Slide 22 As
Cigarette Tax Rises Revenues Increase too Slide 23 Trend in
Cigarette Tax Revenues and Tax Rates in Sweden 1970-1998 Slide 24
As the Chinese Government Increases Prices, Revenues Increases
Slide 25 Tobacco tax revenue is not a significant source of
government tax revenue in most developed countries Slide 26 26
Slide 27 27 Slide 28 Lower Consumption, Higher Revenues Slide 29
High Opportunity Costs Slide 30 30 Smuggling Concerns Smuggling
causes revenue loss to governments: Smuggled cigarettes sell at a
lower price, making cigarettes more affordable and therefore
increasing consumption Smuggling activities provide more
opportunities for organized crime networks and may increase the
general level of corruption in the country One of the most
frightening outcomes of smuggling is the likelihood that children
will find it easier than ever to purchase tobacco products, Slide
31 Large Scale Organized Smuggling Avoidance of taxes Public
tolerance lack of control presence of organized crime the
complicity of the industry Slide 32 Characteristics of Organized
Smuggling Tax free cigarettes exported cigarettes diverted from
intended destination International brands most popular, well-known
Transport system Pass through many owners The presence of criminal
organizations Distribution in non-official outlets Slide 33 33
Canadian Government reduced tobacco tax rates dramatically in
February 1993 Slide 34 34 Sweden decreased cigarette taxes (17%)
due to fear of smuggling in 1998 Slide 35 Tobacco smuggling tends
to rise in line with the degree of corruption Smuggling as a
function of transparency index Slide 36 Recommendations to control
smuggling Require a license and keep detailed records; Make
cigarette exporters post a bond; and Require that unique markings
be placed on cigarette packages. Slide 37 37 Summary Tobacco deaths
worldwide are large and growing, and shifting rapidly towards
developing countries Demand measures, chiefly tax increases,
information, and regulation are most effective to reduce
consumption Control of smuggling is the major supply-side
intervention Tobacco control is cost-effective Slide 38 Types of
Tobacco Taxes Excises Specific - based on quantity Ad-Valorem-
based on value VAT Customs Duty Slide 39 39 What is the right level
of tax? Complex question Depends on various factors, degree to
which society wishes to protect children, revenue considerations,
etc. Useful yardstick: where comprehensive programs used, tax is at
least 2/3 to 4/5 of retail price. Slide 40 40 Choosing the Right
Types of Excises Ad Valorem vs. Specific Slide 41 Ad Valorem
Excises It has a multiplier effect as part of any increase in the
consumer price goes to the government as tax revenue. The
multiplier effect creates a disincentive to the manufacturer to
improve a products quality. It will give greater protection to
domestic producers if the cheaper brands of cigarettes are domestic
products and the prestige brands are imported. Determining the
value is difficult when taxpayers use abusive transfer prices to
reduce their tax liabilities( example: Phillippines). A solution to
the valuation problem is to impose the ad valorem cigarette
excises, which are collected from the manufacturer or importer, on
the maximum retail price that is specified by the manufacturer and
printed on the package. Keep pace with inflation better than
specific taxes. No guarantee that tax revenue will keep pace with
inflation Slide 42 42 Specific Excises Weak tax administration:
Specific automaticaly adjusted for inflation should be preferred to
ad valorem excises Specific taxes could be adjusted automatically
whenever the CPI has increased by more than say 5 percent since the
previous adjustment Specific taxes can keep up with inflation if
they are automatically adjusted by reference to the consumer price
index (CPI) Specific excises are easier to administer Specific
taxation requires a precise definition of what constitutes one unit
of quantity. Specific excises protect the revenues from price wars
or reductions When quality and variety are considered important in
a type of product, economic theory points to specific taxation
Slide 43 43 Types of Tobacco Taxes in EU Slide 44 44 Cigarette Tax
as % of Retail Price for Selected Latin American and the Caribbean
Countries, 1999 Slide 45 45 Administration of Tobacco Taxation and
Revenues Administration: a. Compliance b. Registration and
licensing c. Timing of tax liability and tax payment d. Bonding e.
Physical controls f. Use of stamps g. Refunds and credits h. Floor
stocks tax Slide 46 46 Earmarking tobacco tax revenues
Justification of earmarking tax revenues Earmarked tobacco taxes
could be used to fund health promotion and disease prevention.
Earmarked tobacco taxes promote vertical equity. Earmarking
Revenues for Tobacco Farmers: Earmarking revenues for other anti-
tobacco activities: