How Much Tax Money Was Raised From Cigarettes

Taxing tobacco products has historically been a simple way for governments, through their Community and tax agencies, to collect revenue. Indeed, Adam Smith wrote in his 1776 volume The Wealth of Nations, "sugar, rum, and tobacco are commodities which are no where necessaries of life, which are get objects of almost universal consumption, and which are therefore extremely popular subjects of tax."

Tobacco taxes are relatively easy to administer, particularly if specific excise taxes are used. Moreover, the volume of money currently collected by taxing tobacco is substantial. In 2013 the World Health Organization (WHO) estimated that Community and other revenue agencies worldwide collected approximately 300 billion U.s.a. dollars (USD) annually in tobacco tax revenue.

Public health is a second major benefit ensuing from tobacco taxation. This benefit has its ground in the well-established economic principle that higher prices reduce the demand for a product, service, or activity. Economist Paul Samuelson explained that this "down-sloping demand curve" occurs "when the price of a proficient is raised (at the same time that all other things are held constant), less of it is demanded." The WHO Report on the Global Tobacco Epidemic, 2015, which this article reviews, examines the policy of higher tobacco taxes.

Reducing negative externalities and internalities

Public policy can raise the toll of bad things and besides lower the cost of good things. Concerning the old objective, reducing negative externalities (bad things impacting third parties) and negative internalities (bad things impacting the self), governments have at their disposal a number of approaches to raise prices. In detail, taxation is an effective and efficient way to raise the price of bad things and thus reduce their usage.

This is, for case, the leading recommended strategy for mitigating global warming. By raising the carbon toll, either with a carbon taxation or by emissions trading, carbon pollution will subtract. Concerning this objective, i.e. lowering the price of desired goods, and also in the context of global warming, taxes can exist lowered on cars which don't emit carbon dioxide in order to encourage wider purchases and use of electric vehicles.

Another prime policy example of decreasing negative externalities and internalities is tobacco revenue enhancement, which raises the price of tobacco products. Higher prices reduce tobacco usage, which after atomic number 82 to a autumn in tobacco-induced diseases and premature deaths. This is not to say that taxes are the simply influencer on price; for instance, retail sales prices set up by tobacco companies can also exist an important factor.

In addition to the policy rationale, there is an international legal basis for the notion that tobacco taxes should be college for public health purposes. Article 6 of the WHO Framework Convention on Tobacco Control (FCTC) states that "the Parties recognize that price and tax measures are an effective and important means of reducing tobacco consumption by various segments of the population, in particular immature persons" and that they should "adopt or maintain measures which may include implementing tax policies and, where appropriate, price policies, on tobacco products so equally to contribute to the health objectives aimed at reducing tobacco consumption."

Following the adoption of higher tobacco taxes, Customs administrations and other revenue agencies are thus contributing to the dual objectives of increased revenue collection and improved public health.

Types of tobacco revenue enhancement: specific excise taxes are best for acquirement collection and public health

There are several types of tobacco taxes, such as excise taxes (specific or ad valorem), Customs import duties, and value-added taxes (VAT), including goods and services taxes, sales taxes, or purchase taxes. Specific excise taxes are assessed based on the quantity or weight of the product, while ad valorem excise taxes are assessed based on the value of the production.

Simplicity is a key characteristic for a tax structure to attain public policy objectives, and this is why tobacco control experts advocate specific excise taxes on tobacco products. The WHO written report, mirroring the WHO FCTC Commodity vi Guidelines, supports specific excise taxes as the best way to reach public health and revenue objectives, particularly considering they are easier to administer, and control cost movements, when compared with advertisement valorem excise taxes.

Along the aforementioned lines, tobacco control good Dr. Jha Prabhat and several co-authors wrote: "Specific excise taxes are more important insofar as they differentiate tobacco production prices from other prices more than broader taxes do. A loftier reliance on advertizement valorem and similar taxes by near LIMCs [low- and eye-income countries] creates large price gaps and increases incentives to switch to cheaper products."

One requirement related to specific excise taxes is that they need to be raised periodically to keep up with inflation. For more all-encompassing assay of the use of excise taxes in tobacco control, the WHO's 2010 Technical Manual on Tobacco Taxation Administration is an excellent primer.

Higher tobacco taxes increase revenue

Although it may seem obvious, higher tobacco taxes increase the amount of revenue nerveless. Two of the examples cited in the WHO report illustrate this. In Turkey, the tobacco revenue enhancement rate rose from 58% to 65% of the retail cost – cigarette prices tripled, and revenue from cigarette taxes more than than doubled between 2005 and 2011. In South Africa, from 1993 to 2009, full cigarette taxes rose from 32% to 52% of the retail cost, and the government enjoyed a nine-fold augmentation in acquirement yield from tobacco taxation.

Big tobacco tax increases as well broaden revenue collection even equally the number of smokers begins to decline. Inquiry past the World Bank shows "that even very substantial cigarette tax increases will notwithstanding reduce consumption and increase tax revenues. This is in part because the proportionate reduction in need does not match the proportionate size of the tax increase, since addicted consumers respond relatively slowly to toll rises. Furthermore, some of the money saved by quitters will exist spent on other goods which are besides taxed. Historically, raising tobacco taxes, no matter how big the increase, has never once led to a decrease in cigarette revenue enhancement revenues."

Higher tobacco taxes reduce tobacco usage

Higher tobacco prices lead to decreases in tobacco consumption. The WHO report cites an all-encompassing amount of research that shows how college tobacco taxes correspond to lower tobacco usage. Three of the examples cited in the WHO written report are the United States (US), Brazil, and Turkey:

Cigarette prices increased nearly 350% in the United states of america between 1990 and 2004, largely due to taxation increases. During this time period the percentage of adult American smokers dropped by 33% and the number of cigarettes smoked decreased by more than fifty%;
Brazil experienced similar success. Between 1989 and 2010, the state saw an approximately 46% reject in smoking rates, and almost of this was due to higher tobacco taxes;
As previously mentioned, Turkey increased tobacco taxes while yet enjoying higher revenue collection. In addition, between 2008 and 2012, tobacco sales in the country declined by 12% and the prevalence of smoking declined from 31.2% to 27.ane%.

Another example is Australia, which in 2010 adopted plain packaging legislation and hiked tobacco taxes by 25%. Past 2013, consumption of tobacco products had declined by 11% according to a report released by the Australian Ministry of Finance. Mr. David Crow, the Managing Manager of British American Tobacco Australia, said at a authorities hearing in August 2011 that there "was a 25 per cent increase in the excise and we saw the volumes go downward by nearly 10.2 per cent; at that place was near a 10.2 per cent reduction in the industry last twelvemonth in Australia."

Tobacco toll increases and the subsequent turn down in usage are relatively like in rich and poor countries. In that location is, however, more upside potential in low- and middle-income countries equally they tend to have lower tobacco taxes and higher smoking rates. The WHO report summarizes the research on the impact differentials of tobacco price increases for high-income versus depression- and middle-income countries in the post-obit Table:

Tobacco usage and not-usage tin can be further understood past considering the terms 'initiation,' 'abeyance,' and 'intensity.' Higher tobacco taxes tin positively impact each of these dynamics. Many people first smoking when they are teenagers; higher tobacco prices deter some young people from e'er starting as they are mostly more price sensitive, specially because they take less disposable income. Cessation (quitting) and lowering intensity (a person who reduces the number of cigarettes they smoke but does not quit) can also be positively impacted by higher tobacco taxes, but face the obstruction of overcoming the addictive power of cigarettes.

Higher tobacco taxes do not lead to rampant illicit trade

Peer-reviewed evidence shows that higher tobacco taxes exercise non automatically lead to increased illicit trade in tobacco. The illicit trade in tobacco does, withal, correlate to weak, inefficient, or corrupt governance which is why building constructive, efficient, and less corrupt Community administrations is of import for collecting revenue too as supporting public wellness.

1 example among many is the United Kingdom (UK). While the nominal price per pack more than doubled from 3.74 British pounds (GBP) in 2000 to 7.13 GBP in 2013, the U.k. illicit cigarette marketplace share dropped sharply from 21% in 2001 to 9% in 2013. During this period, cigarette usage in the Uk declined significantly. This success (higher tobacco taxes, more than regime revenue, less smoking, and lower illicit trade) was supported by the conception and implementation of a robust anti-illicit trade in tobacco strategy by Uk Customs.

In add-on to its public health and revenue successes related to tobacco command, Australia is too experiencing lower illicit trade in tobacco. Although seizures are non a perfect proxy for illicit trade, the volume of tonnes of tobacco seized has been declining while the land continues to put similar resource into countering the illicit merchandise in tobacco.

A 2015 peer-reviewed research paper past tobacco command proficient Dr. Michelle Scollo and three co-authors states that there is "no evidence in Australia of increased use of 2 categories of manufactured cigarettes likely to be contraband, no increment in buy from informal sellers, and no increased use of unbranded illicit 'apace' tobacco." Demand for illicit tobacco products is likely to continue to decrease in Australia.

Tobacco taxation rates

An important question for policymakers is what level to set tobacco taxes. The consensus of tobacco command experts is that tobacco taxes should be raised substantially and quickly to achieve government revenue and public health objectives.

The WHO recommends "that excise taxes should business relationship for at least 70% of the retail toll of tobacco products, with continued increases above inflation and income growth after reaching this threshold." The WHO report states that, as of 2014, 33 countries had managed to enhance tobacco taxes to 75% of the retail price.

Decision

As countries increasingly adhere to the WHO FCTC with higher tobacco taxes, governments will collect more money and facilitate lower tobacco usage. Accordingly, past collecting tobacco taxes, Customs and other revenue agencies are making a vital contribution to human equally well as to fiscal health.

More than data
www.who.int/tobacco/global_report/2015/en

Source: https://mag.wcoomd.org/magazine/wco-news-79/higher-tobacco-taxes-increase-revenue-and-save-lives-a-review-of-the-who-report-on-the-global-tobacco-epidemic-2015/

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