Reasons behind heavy taxes on tobacco
Answers
EXCISE TAXES are an effective tool for generating higher revenues. In recent years, in addition to satisfying revenue needs, an increasing number of govern- ments have used tobacco tax increases in order to reduce the health and economic burden of tobacco use. Studies have shown that tobacco taxes are the most cost effective way to reduce tobacco consumption. Implementation of a package of price and non-price policies (e.g. banning smoking in public places, banning advertising etc.) is also highly cost-effective (World Health Report 2002, Jha et al. 2006a, Asaria et al. 2007).
However, with respect to the decision to increase tobacco taxes, political con- siderations have to be taken into account. Such considerations include, but they are not limited to, concerns about the expected impact of a tax increase on: tax evasion (smuggling) and tax avoidance; employment; inflation; affordability of cigarettes and other tobacco products, especially for low income smokers: and the relative prices of foreign and domestic brands. Furthermore, in some countries, a culture of negotiated tax increases has developed between some governments and manufacturers. Manufacturers’ responses to tax increases affect governments’ expected revenues. Crucial to the success of the tobacco tax policy is an under- standing of the political and economic environment in each country.