Tobacco taxation purpose and myths the role of the WB

Tobacco taxation: Purpose and Myths The Role of the WB Montserrat Meiro-Lorenzo The World Bank, mmeirolorenzo@worldbank.org Outline • Why? • What to do? Clear • How to it? Article • Key issues • The Word Bank Four Stages of Tobacco Smoking Epidemic Source: Lopez AD, Collishaw NE, Piha T A descriptive model of the cigarette epidemic in developed countries Tobacco Control, 1994; 3: 242-247 Why tax tobacco? Economist "Sugar, rum, and tobacco, are commodities which are no where necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation Adam Smith, An Inquiry into the Nature and Causes of The Wealth of Nations, 1776 Why Tax Tobacco? •Economic Efficiency • Correct for failures in tobacco product markets • Imperfect information • Externalities • Increased health care costs, lost productivity • Increased financial costs related to publicly financed health care used to treat diseases • Can also include “internalities” that result from addiction and time inconsistent preferences •Other Motives affecting tax structure: • To protect domestic industry and employment • To keep some brands/products affordable to the poor Chalupka 2012 Why Tax tobacco? Health Because high tobacco prices CAN: •Reduce the % of people that use tobacco products (prevalence) •Reduce the quantity consumed by those that continue to smoke Improve health outcomes Taxes, Prices; Health: US, 1980-2005 People Respond to Prices • 10% price increase price change developing countries +10% developed countries -8% -4% consumption change reduces tobacco use rates by about 4% among the poor and around 8% among the better off • Price-elasticity of demand for cigarettes in LICs and MIC is around -0.6 • Poor and young respond more to prices than the better-off and old Source: MTF, Tax Burden on Tobacco, 2011, and author’s calculations Taxes, Prices and Tobacco Use Cig are tte Co ns umptio n, Mo ro c c o , 1965-2000 Source: Aloui, 2003 10 Facilitate monitoring of article • Harmonize the information collected in tobacco taxes as part of article guidelines The WB view • Total support to FCTC • Public health measure • Development issue: micro economic impact, fiscal impact, productivity impact, demographic dividend impact, accelerated aging • Need for regional harmonization WB Policy & Actions: Past • • • • • • • • Curbing the epidemic (1998) No-investment policy (1999), smoke-free Tobacco economics in developing countries Analysis at country and regional level, with WHO 2007 strategy for health results Towards a Political economy of tobacco control Chronic NCDs flagship study, Numerous regional and country specific studies on NCDs "dying young", Ukraine studies, and ongoing analysis WB Policy & Actions: Future • Strengthened capacity to provide tobacco tax advice to countries and make case from the economic point of view • Sensitizing our macro and fiscal policy colleagues • Entering into partnerships with technical and financing institutions WHO, CDC, TFK, ACS, Research centers • Supporting the FCTC secretariat in the context of article and 15 World Bank Instruments • Policy dialogue : CAS, PRSP (setting priorities) • Technical assistance • Economic and sector work (studies) • Lending: Investment, Policy HOW TO DO IT? • Focus on well-defined targets while addressing risk factors from different angles • Give high-profile leaders a central role in driving initiatives • Reinforce accountability of partner institutions • Be opportunistic, identify impact on health and optimize impact • Identify wins for non stake holders (empower non smokers) • Engage relevant sectors according to their mandate, capacity and comparative advantage • Ensure that different actors focus on what they best Lending • Lending: Traditional Projects Ukraine • SWAPS: Kazakstan • Policy Dialog: DPLS LAC & EAR How to it? MOH • Catalyzers • Data collection, epidemiology • Raise awareness of issue • Do background work • Identify interventions that work • Measure impact of policies Role of Civil Society • Research, evidence gathering • Advocacy for increased resources for health • Watch dog on implementation • Monitoring • Resource mobilization • Community outreach and empowerment Role of Private Sector (non tobacco industry) • Worker protection • Lobbying government for harmonizing regulation • Health insurance and long term care financing Role of other government agencies • MOF/ economy, Customs, Ministry of Industry and Trade • Design tax policy, taking into consideration regional harmonization are agreements enforcement and trade control External organizations • Respond to count request or resources: TA, financing • Independent assessments of barriers to tax increase • Support national and international commitment mechanisms, policy conditions international comparisons Cigarette tax and illegal cigarette market, Spain 1991-2008 [...]... Increase of up to 30% of duty paid tobacco Control of Supply Chain, Tax Stamps and Other Tracking Technology, and enforcement: The Experience of Kenya and Relevance for SADC Countries Presented to the World Bank Conference on Economics of Tobacco Control in Southern Africa: The issues of Taxation and Smuggling Gaborone 3-5th June 2012 By Caxton Masudi Ngeywo Kenya Revenue Authority Regressive Taxing the. .. •Who? Who are the manufacturers •What? What are they manufacturing ciagrrets, chewing and wich tarde marks •How much? Manufacturing production •For whom? destination of products 24 Smuggling tobacco UK 1990s Tobacco industry 25-30% UK customs estimated 21% Taxed cigarettes/lower tax coun.: 9% Illicit hand rolled tobacco: 49% Main drivers – lack of control of international movement of tax free tobacco, price... farmers • Indian and Brazil experience from tobacco farmers and bidi roller's opposition to tough demand reduction measures on WHO-FCTC • Min of Agriculture initiative engagement with MOH and advocacy to farmers e.g bamboo as source of energy nets 3000 USD per acre as against 1000 USD rom tobacco • Min of Labour and Min of Rural Development schemes on alternative livelihood to farmers and bidi rollers... tobacco, price difference between tax Policy measures 1000 extra customs officials Additional specialist investigators and intelligence officers National network of X ray scanners Tougher sanctions for those caught with smuggled tobacco Public awareness campaign Prominent duty paid marks on packs of cigarettes and hand-rolling tobacco EFFECTS 50 Per cent 45 Projected market share if no action taken... data: brand, date & time, package quantity, production plant & line • Market surveillance: random verification of products in industry & verification officers through login & GPS • Tax projections from the production data collected on real time Accurate tax assess Automating Cargo Monitoring (Electronic Cargo Tracking) • Electronic Cargo Tracking System ensures cargo exported exits country of export... relationship between cigarette consumption and affordability (r = - 0.98) 12 Cigarette Taxes and Prices Globally 13 Average Price Most Sold Brand, Excise Tax/Pack & Total Share 2010 Source: WHO GTCR III Tobacco Tax: Time to Abolish Myths • Will reduce government revenues • Will destroy jobs / hurt particularly farmers • Smuggling (Illicit trade) • Difficult to collect and implement • Regressive (against poor)... losses The South African experience, 1961 - 2011 Big increases in the excise tax have resulted in big increases in tax revenue Between 1993 and 2011 real excise tax increases by 487% and real excise tax revenue increases by 249% 18 Fall in consumption, real excise & industry revenues increased 19 Percentage changes in important variables since 1993 Variable Percentage Real excise tax per pack of cigarettes... cigarettes 378% Real net -of- tax price of cigarettes 153% Real retail price 212% Cigarette consumption -33% Per capita cigarette consumption -51% Real excise tax revenue 220% Real industry revenue 69% Smoking prevalence From about 35% to about 22% 20 Destroy jobs, hurt farmers Tobacco Leaf production Global : 6 million tons Zimbabwe: 0.21 Tons (3.5%) Malawi: 0.13 (2.2 %) Where are the subsidies going?... Economics of Tobacco Control in Southern Africa: The issues of Taxation and Smuggling Gaborone 3-5th June 2012 By Caxton Masudi Ngeywo Kenya Revenue Authority Regressive Taxing the poor 35 The Poorest smoke most 60% of the 5.7 billion cigarettes/year are being smoked in developing countries 45 Smoking prevalence (2004) [%] 40 35 30 25 20 15 10 5 0 Low-income countries Lowest household income quintiles... Illicit trade control Coast line and expansive borders • Undeclared production • Unaccounted for exports • Undeclared imports: raw & finished • Counterfeited products • Under declared tax values • Switched declarations • Control measures put in • Licencing controls place • Production monitoring, raw materials • Exports management • Bilateral information sharing Track and Tracing solutions • Tax stamps ... extremely proper subjects of taxation Adam Smith, An Inquiry into the Nature and Causes of The Wealth of Nations, 1776 Why Tax Tobacco? •Economic Efficiency • Correct for failures in tobacco product markets... change reduces tobacco use rates by about 4% among the poor and around 8% among the better off • Price-elasticity of demand for cigarettes in LICs and MIC is around -0.6 • Poor and young respond... Why tax tobacco? Economist "Sugar, rum, and tobacco, are commodities which are no where necessaries of life, which are become objects of almost universal consumption, and which are therefore