Undermining Government Tax Policies: Common Strategies Employed by the Tobacco Industry in Response to Tobacco Tax Increases

The WHO Framework Convention on Tobacco Control obligates Parties to the Treaty to implement tax and price measures to reduce the demand for tobacco. In addition to reducing demand, effective tobacco tax increases can also increase government revenue. However, because effective tobacco taxes threaten the profitability of tobacco products for the companies that produce them, the tobacco industry employs strategies to negate or minimize the full effects of tobacco tax increases.

The subject of this report is tobacco industry strategies to avoid the impact of planned tobacco tax increases on industry profits. Intended for government officials and staff charged with developing and administering government tax policy, it describes seven strategies often employed by tobacco companies to undermine the anticipated effects of strong tobacco tax policy: stockpiling, changing product attributes or production processes, lowering prices, over-shifting of prices, under-shifting prices, timing of price increases advantageously, and engaging in price discrimination and/or offering promotions. The discussion on each strategy addresses the motivation for tobacco companies to engage in such strategies, the consequences of the strategy for governments and companies, and measures that governments can take to counter tobacco industry actions to undermine tobacco tax increases. Each strategy is illustrated with one or more country case studies.

The report concludes with a section on the type of data governments should collect in order to monitor tobacco industry actions in response to planned tobacco tax increases and formulate effective responses.

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View the executive summary.