Appendix: Curbing the Epidemic
Tobacco Taxation: A View From The International Monetary Fund
INCREASES in tobacco excise rates are often included as a component of Fund-supported stabilization programs for countries that need to mobilize additional tax revenue to reduce the fiscal deficit. While excise rates on tobacco products may be increased primarily to raise revenue, there are also health benefits from reduced tobacco consumption.
In setting tobacco tax rates, governments need to take into account several factors, including the impact of smuggling, cross-border shopping, and duty-free purchases on ferries and planes. It is in the interest of governments to reduce tobacco smuggling not only to increase excise revenues but also to limit the loss of revenues from other taxes, including income and value-added taxes, as underground transactions replace legal ones. Ultimately, tobacco excise tax rates must reflect the purchasing power of the local consumers, rates in neighboring countries, and, above all, the ability and willingness of the tax authority to enforce compliance.
With respect to the structure of tobacco excises, countries should tax all types of tobacco-cigarettes, cigars, pipe tobacco, snuff or chewing tobacco, and hand-rolling tobacco. The best international practice is to impose excises on the destination basis under which imports are taxed and exports are freed of tax.
Excises can be either specific taxes (based on quantity) or ad valorem (based on value). If a primary purpose of the excise is to discourage tobacco consumption, a strong case can be made for specific excises that would impose the same tax per stick. Specific taxes also are easier to administer because it is only necessary to determine the physical quantity of the product taxed, and not necessary to determine its value. Ad valorem taxes, however, may keep pace with inflation better than specific taxes, even specific taxes that are adjusted fairly frequently.
The administration of domestic tobacco excises requires an integrated strategy for taxpayer registration; filing and payment; collection of overdue taxes; audit; and taxpayer services. Developing and transition countries may need to treat tobacco production facilities as extraterritorial and administer excises similar to customs duties. The tax authority would control shipments into and out of the production facility.
Excise stamps can assist in ensuring the payment of excises and ensuring that goods that have paid the tax appropriate for one jurisdiction are not shipped to another. Introduction of stamps, however, involves considerable costs for producers of excised goods. Stamps will serve little purpose in control unless their utilization is monitored at the retail level.
SOME of these background papers will be published in a forthcoming book by Oxford University Press titled Tobacco Control Policies in Developing Countries, edited by Prabhat Jha and Frank Chaloupka.
Bobak, Martin, Prabhat Jha, Son Nguyen, and Martin Jarvis. Poverty and Tobacco.
Chaloupka, Frank, Tei-Wei Hu, Kenneth E. Warner, Rowena van der Merwe, and Ayda Yurekli. Taxation of Tobacco Products.
Gajalakshmi, C.K., Prabhat Jha, Son Nguyen, and Ayda Yurekli. Patterns of Tobacco Use, and Health Consequences.
Jha, Prabhat, Phillip Musgrove, and Frank Chaloupka. Is There a Rationale for Government Intervention?
Jha, Prabhat, Fred Paccaud, Ayda Yurekli, and Son Nguyen. Strategic Priori-ties for Governments and Development Agencies in Tobacco Control.
Joossens, Luk, David Merriman, Ayda Yurekli, and Frank Chaloupka. Issues in Tobacco Smuggling.
Kenkel, Donald, Likwang Chen, Teh-Wei Hu, and Lisa Bero. Consumer Information and Tobacco Use.
Lightwood, James, David Collins, Helen Lapsley, Thomas Novotny, Helmut Geist, and Rowena van der Merwe. Counting the Costs of Tobacco Use.
Merriman, David, Ayda Yurekli, and Frank Chaloupka. How Big Is the World-wide Cigarette Smuggling Problem?.
Novotny, Thomas E., Jillian C. Cohen, and David Sweanor. Smoking Cessation, Nicotine Replacement Therapy, and the Role of Government in Sup-porting Cessation.
Peck, Richard, Frank Chaloupka, Prabhat Jha, and James Lightwood. Cost-Benefit Analysis of Tobacco Consumption.
Ranson, Kent, Prabhat Jha, Frank Chaloupka, and Ayda Yurekli. Effectiveness and Cost-effectiveness of Price Increases and Other Tobacco Control Policy Interventions.
Saffer, Henry. The Control of Tobacco Advertising and Promotion.
Sunley, Emil M., Ayda Yurekli, and Frank Chaloupka. The Design, Administration, and Potential Revenue of Tobacco Excises: A Guide for Developing and Transition Countries.
Taylor, Allyn L., Frank Chaloupka, Emmanuel Guindon, and Michaelyn Corbett. Trade Liberalization and Tobacco Consumption.
Van der Merwe, Rowena, Fred Gale, Thomas Capehart, and Ping Zhang. The Supply-side Effects of Tobacco Control Policies.
Woollery, Trevor, Samira Asma, Frank Chaloupka, and Thomas E. Novotny. Other Measures to Reduce the Demand for Tobacco Products.
Yurekli, Ayda, Son Nguyen, Frank Chaloupka, and Prabhat Jha. Statistical
THIS report benefited greatly from ideas, technical inputs, and critical review from a broad range of individuals and organizations. Contributions to specific chapters are acknowledged in the Bibliographical Note. Reviewers for the background papers or the summary report are noted below. In addition, valuable input was provided by a series of consultations.
A. Reviewers for Background Papers or the Summary Report
Iraj Abedian, Samira Asma, Peter Anderson, Enis Baris, Howard Barnum, Edith Brown-Weiss, Neil Collishaw, Michael Ericksen, Christine Godfrey, Robert Goodland, Ramesh Govindaraj, Vernor Griese, Jack Henningfield, Chee-Ruey Hsieh, Teh-Wei Hu, Gregory Ingram, Paul Isenman, Steven Jaffee, Dean Jamison, Michael Linddal, Alan Lopez, Dorsati Madani, Will Manning, Jacob Meerman, Cyril Muller, Philip Musgrove, Richard Peck, Richard Peto, Markku Pekurinen, John Ryan, David Sweanor, John Tauras, Joy Townsend, Adam Wagstaff, Kenneth Warner, Trevor Woollery, Russell Wilkins, Witold Zatonski, Barbara Zolty, and Mitch Zeller
1. Examination of Draft Report Outline and Key Economic Issues August 27, 1997, at the 10th World Conference on Tobacco or Health, Beijing, China. Supported by the World Bank. Chair: Thomas Novotny
Participants: Iraj Abedian, Frank Chaloupka, Simon Chapman, Kishore Chaudhry, Neil Collishaw, Vera Luisa da Costa y Silva, Prakash Gupta, Laksmiati Hanafiah, Natasha Herrera, Teh-Wei Hu, Desmond Johns, Prabhat Jha, Luk Joossens, Ken Kyle, Eric LeGresley, Michelle Lobo, Judith Mackay, Patrick Masobe, Kathleen McCormally, Zofia Mielecka-Kubien, Rafael Olganov, Alex Papilaya, Terry Pechacek, Milton Roemer, Ruth Roemer, Lu Rushan, Cecilia Sepulveda, David Simpson, Paramita Sudharto, Joy Townsend, Sharad Vaidya, Rowena Van Der Merwe, Kenneth Warner, Shaw Watanabe, David Zaridze, and Witold Zatonski
2. Initial Review of Outlines and Content of Background Papers February 20, 1998, at the University of Cape Town's conference on "The Eco-nomics of Tobacco: Toward an Optimal Policy Mix," Cape Town, South Af-rica. Supported by the Institute of Social and Preventive Medicine at the University of Lausanne, and the University of Cape Town.
Chair: Paul Isenman
Participants: Iraj Abedian, Judith Bale, Enis Baris, Frank Chaloupka, David Collins, Neil Collishaw, Brian Easton, Helmut Geist, Chee-Ruey Hsieh, Teh-Wei Hu, Prabhat Jha, Luk Joossens, Kamal Nayan Kabra, Pamphil Kweyuh, Helen Lapsley, Judith Mackay, Eddie Maravanyika, Sergiusz Matusia, Tho-mas Novotny, Fred Paccaud, Richard Peck, Krzysztof Przewozniak, Yussuf Saloojee, Conrad Shamlaye, Timothy Stamps, Krisela Steyn, Frances Stillman, David Sweanor, Joy Townsend, Rowena Van Der Merwe, Kenneth Warner, and Derek Yach
3. Economists' Technical Review Meeting
November 22-24, 1998, in Lausanne, Switzerland. Sponsored by the Institute of Social and Preventive Medicine at the University of Lausanne, and the World Bank.
Co-Chairs: Felix Gutzwiller and Fred Paccaud
Participants: Iraj Abedian, Nisha Arunatilleke, Martin Bobak, Phyllida Brown, Frank Chaloupka, David Collins, Jacques Cornuz, Christina Czart, Nishan De Mel, Jean-Pierre Gervasoni, Peter Heller, Tomasz Hermanowski, Alberto Holly, Teh-Wei Hu, Paul Isenman, Dean Jamison, Prabhat Jha, Luk Joossens, Jim Lightwood, Helen Lapsley, David Merriman, Phillip Musgrove, Son Nguyen, Richard Peck, Markku Pekurinen, Thomson Prentice, Kent Ranson, Marie-France Raynault, John Ryan, Henry Saffer, David Sweanor, John Tauras, Allyn.93 ACKNOWLEDGMENTS Taylor, Joy Townsend, Rowena van der Merwe, Kenneth Warner, Trevor Woollery, and Ayda Yurekli
4. External Experts' Review
March 17, 1999, in Washington, D.C. Sponsored by the Office on Smoking and Health, U.S. Centers for Disease Control and Prevention. Chair: Michael Ericksen Participants: Iraj Abedian, Samira Asma, Judith Bale, Enis Baris, Phyllida Brown, Frank Chaloupka, Peter Heller, Paul Isenman, Prabhat Jha, Nancy Kaufman, Thomas Loftus, Judith Mackay, Caryn Miller, Rose Nathan, Son Nguyen, Fred Paccaud, Anthony So, Roberta Walburn, Kenneth Warner, Trevor Woollery, Derek Yach, and Ayda Yurekli.
The World By Income And Region (World Bank Classification)
Grouped: East Asia and Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub- Saharan Africa High- income OECD Other high income
East Asia and Pacific Cambodia China Lao PDR Mongolia Myanmar Vietnam
Europe and Central Asia Armenia Azerbaijan Bosnia and Herzegovina Kyrgyz Rep. Moldova Tajikistan
Latin America and the Caribbean Guyana Haiti Honduras Nicaragua
Middle East and North Africa Yemen, Rep.
South Asia Afghanistan Bangladesh Bhutan India Nepal Pakistan Sri Lanka Rep.
Sub- Saharan Africa Angola Benin Burkina Faso Burundi Cameroon Central African Chad Comoros Congo, Dem. Rep. Congo, Rep. Côte d'Ivoire Equatorial Guinea Eritrea Ethiopia Gambia, The Ghana Guinea Guinea- Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritania Mozambique Niger Nigeria Rwanda Sáo Tomé and Principe Senegal Sierra Leone Somalia Sudan Tanzania Togo Uganda Zambia Zimbabwe
High- income OECD - none Other high income - none
Lower middle income
East Asia and Pacific Fiji Indonesia Kiribati Korea, Dem. Rep Marshall Islands Micronesia Fed. Sts. Papua New Guinea Philippines Samoa Solomon Islands Thailand Tonga Vanuatu
Europe and Central Asia Albania Belarus Bulgaria Estonia Georgia Kazakstan Latvia Lithuania Macedonia Romania Russian Fed. Turkey Turkmenistan Ukraine Uzbekistan Yugoslavia Fed Rep
Latin America and the Caribbean Belize Bolivia Colombia Costa Rica Cuba Dominica Dominican Rep. Ecuador El Salvador Grenada Guatemala Jamaica Panama Paraguay Peru St. Vincent and the Grenadines Suriname Venezuela
Middle East and North Africa Algeria Egypt, Arab Iran, Islamic Rep Iraq Jordan Lebanon Morocco Syrian Arab Rep. Tunisia West Bank and Gaza
South Asia Maldives
Sub- Saharan Africa Botswana Cape Verde Djibouti Namimbia Swaziland
High- income OECD - none Other high income - none
Upper middle income
East Asia and Pacific American Samoa Malaysia Palau
Europe and Central Asia Croatia Czech Rep. Hungary Isle of Man Malta Poland Slovak Rep. Slovenia
Latin America and the Caribbean Antique and Barbuda Argentina Barbados Brazil Chile Guadeloupe Mexico Puerto Rico St. Kitts and Nevis St. Lucia Trinidad and Tobago Uruguay
Middle East and North Africa Bahrain Libya Oman Saudi Arabia
South Asia - none
Sub- Saharan Africa Gabon Mauritius Mayotte Seychelles South Africa
High- income OECD - none Other high income - none
High- income OECD
Australia Austria Belgium Canada Denmark Finland France Germany Greece Iceland Ireland Italy Japan Korea, Rep. Luxembourg Netherlands New Zealand Norway Portugal Spain Sweden Switzerland United Kingdom United States
Other high income Andorra Aruba Bahamas, The Bermuda Brunei Cayman Is. Channel Is. Cyprus Faeroe Is. French Guiana French Polynesia Greenland Guam Hong Kong, China Israel Kuwait Liechtenstein Macao Martinique Monaco Netherlands Antilles New Caledonia Northern Mariana Is. Qatar Reunion Singapore United Arab Emirates Virgin Islands (U. S.)
Source: World Bank, 1998..101