Tobacco Taxes: A Win-Win Measure for Fiscal Space and Health

Two-thirds of the world’s tobacco users live in just 15 countries, and 5 of these high-burden countries (People’s Republic of China, India, Philippines, Thailand, and Viet Nam) are in Asia. This report aims to assess how changes in cigarette taxes can reduce consumption and save lives in these high-burden countries. In the absence of intervention, smoking will eventually kill about 267 million current and future cigarette smokers who are alive today in the five countries. We find that for all five countries, increases in cigarette prices (in the range of 25%–100%) effectively reduce the number of smokers and the number of smoking-related deaths, and generate substantial new revenues. In the five countries, a 50% price increase, corresponding to a tax increase of about 70%–122%, would reduce the number of current and future smokers by nearly 67 million and reduce tobacco deaths by over 27 million, while generating over $24 billion in additional revenue annually (a 143%–178% increase over each country’s current cigarette tax revenue). The revenue increase, or “fiscal space,” averages 0.30% of gross domestic product, with a wide range of 0.07%–2.52%. The poorest socioeconomic groups in each country bear only a relatively small part of the extra tax burdens, but reap a substantial proportion of the health benefits of reduced smoking. The ratio of health benefits accrued to the poor to the extra taxes borne by the poor ranges from 1.4 to 9.5. Thus, large increases in the cigarette tax in all of these countries are unusually attractive for public health and public finance, and are pro-poor in their health benefits.

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November 2012

Authors:
Jha, Prabhat
Renu Joseph
David Li
Cindy Gauvreau
Ian Anderson
Patricia Moser
Sekhar Bonu
Indu Bhushan
Frank J. Chaloupka