Excise tax increases that significantly raise tobacco product prices and reduce their affordability are among the most effective fiscal measures to reduce tobacco consumption (and thereby its adverse health consequences) by discouraging purchase of tobacco products, thereby encouraging tobacco cessation and preventing tobacco uptake among various segments of the population, in particular price-sensitive young people and the poor.
Tobacco taxes can therefore have large aggregate benefits for public health and socio-economic development, primarily through healthier and more productive populations and reduced healthcare costs, reducing poverty, and providing a reliable source of government revenues. For these reasons, tobacco tax increases are described as a win-win policy measure, i.e. a highly cost-effective WHO “best buy” public health intervention and a reliable source of domestic financing.
The World Bank has recommended that the total tax burden should be 66% to 80% of the retail price, and more recently, the WHO has recommended that at least 70% of retail price should be excise. The current global guidance for tobacco taxation, however, remains to be WHO FCTC Article 6 and its implementation guidelines (adopted by the WHO FCTC COP in 2014), which recommend that governments should adopt long-term tax and price policies that meet both their public health and fiscal needs.
This means applying specific or mixed (specific and ad valorem) taxes on all tobacco products, taxing all tobacco products in a similar way (to reduce the potential for product substitution), and regularly increasing tax rates so as to continually reduce affordability of tobacco products. This also means strengthening tobacco tax administration (licensing, warehousing, anti-forestalling, fiscal markings, and enforcement), considering dedicating tobacco tax revenues to tobacco control programmes, and prohibiting or restricting tax/duty-free sales of tobacco products.
This chapter provides an overview of the tobacco tax situationi in ASEAN countries, where tax policies have been strengthened in some countries, but require more improvements in others. Countries such as Philippines, Singapore, and Thailand are good examples where tax increases have contributed to a decline in smoking prevalence rates alongside higher tobacco tax revenues. In the case of Lao PDR, the government’s lopsided Investment License Agreement (2001-2026) with Imperial Brands prevents the Lao government from benefiting, as the government continues to lose millions in tobacco tax revenues (see Chapter 1) while being unable to reduce tobacco use.
Cigarette Affordability: Relative Income Prices (RIP)* of cigarettes in ASEAN
Prices of most popular cigarette brands in ASEAN
*Findings from youth opinion survey on cigarette prices in five ASEAN countries conducted in 2017. Respondents were aged 13-24 years.
**The study was conducted among Indonesians aged between 14 -78.
***Djarum Super was the most popular brand prior to 2014. There are no licensed tobacco importers and retailers in Brunei since May 2014.
Tobacco tax burden as percentage of cigarette retail price in ASEAN
*The estimate was calculated based on premium cigarette brand.
** There are no licensed tobacco importers and retailers in Brunei since May 2014. Hence, there are no cigarettes being sold legally in the country.
Cigarette tax systems in ASEAN
* GST is removed beginning of 1 June 2018, however, the cigarette prices remain the same. The new tax rate of 10% sales and services tax (SST) will be applied in September.
**Based on the new tax law passed in 2016, the excise tax rate should be 30% (2016-2017); 45% (2018-2019) and 60% (2020 onwards). However, the new tax rate is not enforced due to the unfair Investment License Agreement (ILA) with tobacco industry signed in 2001.
***This rate will be applied from 16 September 2017 to 30 September 2019.
**** This rate will be applied on 1 October 2019 onwards.
Implementation of FCTC Article 6 Guidelines
Tax all tobacco products: No duty-free allowance
Tobacco tax administration in ASEAN
Licensing of tobacco retailers in ASEAN
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Thailand: Higher tax rates, higher revenues, and reduced smoking prevalence
Thailand raised its cigarette excise rates 11 times (from 55% to 87% of factory price)between 1991 and 2012, which resulted in an almost fourfold gain in revenues from THB 15.89 billion (USD 530 million) to THB 59.91 billion (USD 1,997 million) over the same period. At the same time, overall smoking prevalence dropped from 32% (1991) to 21.4% (2011). The Thai government has further increased the tax rate to 90% in early 2016, aimed at reducing number of smokers and raising tax revenue by about THB15 billion per annum.
In September 2017, a new tax structure and rate on tobacco came into force to further reduce cigarette affordability in Thailand.
Singapore: Highest tobacco tax burden in ASEAN
Concerned by slight increase in smoking prevalence from 2004 to 2017 and noting that the last tobacco excise tax increase was in 2014, the Singapore government decided to increase tax by 10% across all tobacco products in February 2018.