Tobacco Tax: How much is enough?

Tobacco control advocates have long promoted higher excise taxes on cigarettes as a way to reduce cigarette consumption. Those efforts are backed by a large body of research that has shown an unequivocal association between higher cigarette prices and lower consumption. But how do governments determine what amount of tax is enough? A new study from American Cancer Society researchers finds the usual way that is determined, by a percentage of the price, might be inadequate, and that a new model, based on affordability, would be more effective in reducing future cigarette consumption.

For the past several years, tobacco control advocates have promoted benchmarking the percentage of the retail price occupied by tax. The World Bank recommended that excise tax account for two-thirds to four-fifths of the retail price of cigarettes. More recently, a growing body of literature suggests that the affordability of cigarettes may be more important than just price. This concept is useful since it takes into account not only price but also income. In other words, having taxes make up two-thirds or more of a price of a pack of cigarettes won’t do much if the price is still quite affordable.

In a new study, published in the journal Tobacco Control, ACS researcher Evan Blecher used South Africa as a case study, simulating what would happen with cigarette consumption using both models. He found that although targeting the “percentage” did lead to an increase in price and reduced tobacco consumption in South Africa in the past, it has had drawbacks, particularly in the context of a rapidly growing economy. In other words, as people’s income rises, they can afford higher taxes, limiting the effect of the “percentage” model. When Belcher applied the “affordability” model, he found it would be more effective in reducing future cigarette consumption. He suggests an “affordability” target would be an appropriate alternative in countries like South Africa, where those incomes are rising faster than inflation.

Article: Targeting the affordability of cigarettes: a new benchmark for taxation policy in low-income and-middle-income countries, Evan Blecher, TC Online First, published on June 7, 2010 as 10.1136/tc.2009.030155

About David Sampson

I am the director of medical and scientific communications for the American Cancer Society national home office.
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