The World Bank Group
A new document published by The World Bank Group affirms increasing excise tax rates can help countries accelerate progress on development goals by saving millions of lives, reducing poverty, and increasing domestic resources for financing development. Tobacco Tax Reform: At the Crossroads of Health and Development – A Multisectoral Perspective sets forth the public health, economic and anti-poverty case for higher taxes, presents cases of successful tax reforms and documents the measurable results of tobacco taxation.
Tobacco Tax Reform also addresses common arguments of the tobacco industry to oppose tobacco tax increases. It concludes that increasing tobacco taxes helps the poor because the poor gain the most health and economic benefits after quitting smoking. Contrary to industry arguments about employment, the document states that tobacco industry job losses worldwide result from automation and consolidation and not from tobacco tax increases. With respect to illicit trade, The World Bank monograph reaffirms that, even in the presence of significant levels of smuggling, higher tobacco taxes cut cigarette use and raise fiscal revenues and that the main drivers of illicit trade are weak tax administration and enforcement mechanisms.
- Go big, go fast. Tobacco tax policy should focus on health benefits first and then on fiscal benefits. This means that tobacco tax increases should begin with large increases from the beginning. In tobacco taxation, the rewards go to those who act boldly.
- Attack affordability. Tobacco taxes only reduce tobacco use if they reduce tobacco affordability. Effective tax strategies will usually involve combining big initial tax increases with recurrent hikes over time, enabling prices to climb more steeply than per capita income growth.
- Change expectations. Governments should communicate with the public about tobacco taxation to explain its benefits and let smokers know that cigarette prices will continue to increase. This will motivate smokers to quit.
- Tax by quantity, not price. Tobacco tax rates should be simple and based on quantity and not on price. Simplified tax rates prevent users from switching to cheaper brands. These can be achieved by using specific excise taxes, which can be adjusted to ensure tobacco product affordability is reduced overtime, or by eliminating tax tiers so that large tax increases are applied on all brands at the same time, pushing tobacco users to quit completely rather than switch to cheaper options.
- ‘Soft’ earmarks can win support. Strategic allocations of the revenue derived from tobacco tax increases – for example, linking new revenue to health priorities – has helped generate public support for tax increases, even among tobacco users.
- Regional collaboration can boost results. Momentum for ambitious tax reform can be enhanced and cross-border threats, like smuggling, can be minimized when countries work together in a regional structure.
- Build broad alliances. Tobacco industry opposition to effective tobacco tax increases for health is fierce and will use a range of tactics and arguments to weaken proposed policy. Tobacco control advocates can best prepare to address tobacco industry opposition through building broad alliances that include expertise in fiscal policy and economic analysis, multi-sectoral government engagement and the mobilization of key opinion and civil society leaders
Full Citation: The World Bank Group. Tobacco Tax Reform: At the Crossroads of Health and Development – A Multisectoral Perspective. Washington, DC: The World Bank Group. September 2017.