2022 Brings Some Modest Beneficial Cigarette Tax Increases

Since ringing in 2022, several new cigarette tax increases have taken effect around the world, marking progress in the use of fiscal policy to reduce tobacco use. As research continues to show, tax increases are the most reliable policy tool to encourage smokers to quit, discourage young people from trying cigarettes, and generate revenue to offset the public health costs of tobacco use. Further tax increases are needed in many countries to better prevent smoking, the world’s leading cause of death.

In Asia, several countries recently implemented tax increases. In Indonesia, January 1st brought an average 12 percent increase in excise tax across cigarette tiers, part of an effort to address Indonesia’s notably high youth smoking rate. In the Philippines, the excise tax on cigarettes increased by five Philippine pesos per pack as part of an initiative passed in 2012, with plans for an additional increase in 2023 to reach a rate of 60 pesos per pack. The final increase will mark the capstone of this government effort to reduce tobacco use and raise revenue to support universal health care. The Special Consumption tax on cigarettes increased by 47 percent in Turkey at the beginning of the new year, a welcome reform after the 2nd edition Cigarette Tax Scorecard showed a failure to reduce the affordability of cigarettes in Turkey from 2018 to 2020. As a result of this reform, cigarettes are likely to become less affordable in Turkey, likely improving their score in the next edition of the Scorecard. In addition to an average 4 percent increase in excise tax, Russia also increased its excise tax by four percent and minimum cigarette price on January 1st, from 108 to 112 rubles per pack.

Taxes on tobacco products in Germany increased at the beginning of the year for the first time in seven years and are expected to increase prices by 10 euro cents for an average pack of cigarettes. Much like the sustained increases we have observed in the Philippines, Germany’s Tobacco Tax Modernization Act also requires that the tax continue to increase incrementally through 2026. Further east, Lithuania’s excise tax increase on January 1st resulted in prices of cigarettes and other tobacco products rising by 17 and 27 euro cents per pack, respectively.

In Morocco, the government implemented a new minimum collection for the ad valorem tax, mitigating the tobacco industry’s ability to manipulate the tax base to lower their tax payments. This increased the price of most cigarettes by one to two Moroccan dirhams. Meanwhile, Mexico’s Special Tax on Production and Services (IEPS) was updated for inflation at 7.36 percent according to the annual inflation update adopted in 2020, so they are not losing ground to inflation. In the South Pacific region, January 1, 2022 marked the beginning of New Caledonia’s plan to increase taxes on tobacco products by 10 percent annually for three years. After successfully reducing the sale of cigarettes following a price increase in 2019, this policy is an extension of the government’s efforts to reduce smoking and invest tobacco tax revenue in other addiction interventions. 

Because price influences demand for cigarettes, tax increases like these—i.e., that raise prices— effectively reduce affordability and influence consumer purchasing decisions. Importantly, the higher prices caused by tax increases also make cigarettes less attractive and accessible to young people in particular. While many of the recently implemented tax increases are relatively small or incremental, large tax increases offer the greatest opportunity to prevent illness and premature death caused by cigarette smoking. This means ensuring tax increases outpace inflation and per capita income growth at a minimum, though the WHO recommends going further and raising total taxes on tobacco to at least 75 percent of retail price. Currently, tobacco taxes are not outpacing income growth and inflation in many countries, but particularly in low- and middle-income countries (LMICs), and in some cases, the effects of recent tax reforms are eroding. Making cigarettes less affordable through significant tax increases reduces consumption, generates government revenues, enhances equity in most countries, and ultimately, saves lives. The tax increases mentioned here are all steps in the right direction as we start the new year.