Tax Increases Around the World– July 2022 Update
As we shared in January, several countries around the world are taking necessary steps to reduce cigarette consumption by raising taxes on tobacco products. The body of research continues to grow more robust showing tax increases are the most effective and cost-effective policy tool to encourage smokers to quit, discourage young people from starting to use cigarettes, and generate revenue to offset the public health costs of tobacco use. While we described the policy changes announced at the beginning of 2022 as “modestly beneficial”, additional tax increases announced in recent months build upon the momentum of this progress.
In Montenegro, a 10% increase in the specific component of the tobacco excise tax took effect on June 1st, with another increase of nearly 10% planned for January of 2023. At the same time, the ad valorem component will decrease by 1.5 percentage points each time the specific component increases, with the goal of increasing the weight of the specific component. This aligns with established international best practices, which show specific excise tax structures to be most effective in discouraging consumption in part because they help to decrease price variation across brands discouraging substitution to cheaper products. UIC think tank partner, ISEA, closely advised the Ministry of Finance throughout the proposal process, and their research was cited in the excise increase proposal to Parliament.
Pakistan raised tobacco excise taxes by an average of 12.5%. Although modest, it is the first tobacco tax increase in three years in the country. Adopted in the Finance Act (2022-2023), this increase in the Federal Excise Duty on cigarettes on high-price brands (Rs. 5,900 per thousand sticks, or a 13.5% increase) and low-priced brands (Rs. 1,850 per thousand sticks, or a 12.1% increase) is expected to reduce consumption by 4.6% resulting in over 392,000 smokers quitting while increasing revenue by 7.9%. The Finance Act also includes a 10% super tax on the tobacco industry’s income.
In Turkey, the minimum tax on cigarettes increased by 0.08 TRY, while Portugal announced that its 2022 State Budget will include a 1% increase in the Tax on Alcohol, Alcoholic Beverages and Sugar-Added Beverages. Romania’s Ministry of Finance published a draft Fiscal Code reform on July 4th, including increases on tobacco excise duties which would take effect August 1st if approved. Azerbaijan also increased its tax on cigarettes from 43.0 to 46.5 AZN per 1,000 sticks this spring, with the new rate taking effect in April.
Further east, our partners at the Institute of Health Economics have been following policy changes in Bangladesh which has slightly increased minimum prices of all tiers of cigarettes beginning in FY 2022-2023, with the greatest increase applied to the high tier. Shrinking the gap between tiers is a step in the right direction, but there remains significant need to eliminate tiers altogether. Furthermore, the tax increases are simply not sufficient to reap the public health and fiscal rewards that would come from larger tax rate increases.
Tobacco tax increases have also been announced in Africa and South America. As of June 1, Nigeria increased the ad valorem tax on cigarettes from 20% to 30%, while also implementing a gradual increase of the specific excise tax component. The excise tax increased from 58 to 84 NGN per pack of 20 cigarettes last month, and will be increased to 94 NGN per pack in 2023; then 104 NGN per pack in 2024. Announcing the policy change, Nigerian Minister of State for Health, Olorunnimbe Mamora, cited the Tobacco Atlas, which estimated more than 26,800 deaths occur from tobacco-related diseases in Nigeria annually. Meanwhile, excise duties on tobacco are increasing by between 4.5 and 6.5% under the 2022 budget in South Africa. Kenya passed the Finance Act 2022 on June 21st, incorporating an increase of just over 9% in excise duty rates on three categories of tobacco products, effective July 1st. In these last two instances, though welcome, neither increase is likely to outpace inflation and growth.
In South America, Paraguay has also increased tobacco tax rates slightly since the new year, raising the Selective Consumption Tax (ISC) applied on the ex-factory price of cigarettes from 18 to 20%. Unfortunately, ex-factory prices are low in Paraguay and the government should strongly consider changing the tax base to retail prices.
During the current period of inflation throughout the world, increasing the prices of tobacco so that they do not become more affordable relative to other goods is critical. Modest tax increases are insufficient to the task of reducing tobacco consumption when they do not even keep pace with inflation and income growth. To maximize the effectiveness of tobacco taxes in raising revenues and improving public health, countries should continue to improve their tax structures, annually adjusting tax rates to outpace inflation and income growth, and work toward the widely accepted recommendation that excise taxes on tobacco total at least 70% of retail price. For more information on cigarette tax policy and how your country performs, browse the Tobacconomics Cigarette Tax Scorecard.