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 situation in ASEAN countries, where tax policies have been strengthened in some countries, but require more improvements in others. Thailand has the highest tax burden as a percentage of retail price (78.6%), followed closely by Philippines (71.3%) and Singapore (67.5%). These countries are good examples where tax increases have contributed to a decline in smoking prevalence rates alongside higher tobacco tax revenues. Most countries also do not have any long-term tobacco tax policies with regularly evaluated fiscal and public health targets. Cigarette prices remain affordable and relatively low throughout the region, particularly in Cambodia, Lao PDR, and Vietnam (less than USD 1 per pack) where regular tax increases are needed to keep pace with economic and income growth.
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 page 19) while being unable to reduce tobacco use .
Generally, cigarette prices remain affordable and relatively low throughout the region, but particularly in Cambodia, Lao PDR, and Vietnam (less than USD 1 per pack) where regular tax increases are needed to keep pace with economic and income growth.
In Malaysia, an excise duty of 10% on all smoking devices—both electronic and non-electronic cigarettes including vape, electronic heated tobacco products, and traditional tobacco devices such as hookah/shisha and smoking pipes; while excise duty of MYR 0.40 (USD 0.10) per milliliter imposed on non-nicotine liquid used in electronic cigarettes (vape juice), effective on 1 January 2021.
In Malaysia, there was no tax increase on tobacco following statements from the tobacco industry that it will worsen smuggling. The last tax increased was in 2015.
In Indonesia, while value-added tax (VAT) for all consumer products is 10%, cigarettes have been given a discount for many years at only 8.4%. In 2015, the VAT for tobacco was raised slightly to 8.7%, which is still not the full amount. The government continues to accommodate demands from the tobacco industry to provide more time for implementation or delay the regulation of tobacco control as seen in not acceding to the FCTC.
Thailand has also awarded tax exemption for native tobacco leaves, while Cambodia export tax was exempted for registered farmers producing more than 3,000 tons of tobacco leaf.
Vietnam government accommodated requests from the tobacco industry, which argued for lower tax rate and delayed the date of its implementation by one (1) year.
Thailand enforces a license or control system on the whole tobacco supply chain. All other countries in ASEAN require licensing for only some parts of the supply chain, thereby allowing loopholes for tax evasion and illicit trade.
In Malaysia, a public consultation on licensing of cigarette retailers was carried out early in the year but following protests from retailer groups there was no decision.
All countries should follow the lead of Brunei Darussalam and Singapore that prohibit duty-free tobacco sales or of Malaysia and the Philippines that impose excise tax on duty-free products.
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.
Concerned by slight increase in smoking prevalence from 2004 to 2010 and noting that the last tobacco excise tax increase was in 2005, the Singapore government decided to increase tax by 10% in 2014.
Up to March 2003, excise duty on cigarettes was by weight per kilogram of tobacco. From July 2003, excise duty on cigarettes was revised to a unit-based (per stick) system. This change to a unit-based system was in response to the emergence in 2000 of low-priced cigarettes that had less tobacco content and less weight per cigarette and which, due to their price, were attracting young people to smoke and encouraging smokers to smoke more, as evidenced in a shift in consumer behavior pattern (sales of low-priced cigarettes increased from 6% in 2000 to 25% in 2003).
For unmanufactured tobacco and cut tobacco, the excise duty is SGD 388 per kg. For beedies, ang hoon, and smokeless tobacco, the excise duty is SGD 329 per kg. For all other tobacco products, the excise duty is SGD 427 per kg. An additional 7% goods and services tax (GST) - on the cost, insurance and freight incurred plus tobacco tax - is imposed on top of the excise duties.