WHO Raises Concern Over Decreasing Tobacco Tax Shares in Americas

Recently, the Pan American Health Organization (PAHO) and Tabaconomía, a tobacco control think-tank that is part of Bloomberg Philanthropies, held a webinar to discuss the status of tobacco taxation post-COVID-19.

The 200 webinar participants comprised government officials, PAHO/World Health Organization (WHO) member states involved in designing, monitoring, and evaluating tobacco tax policies, and economics and health professionals involved in the ongoing implementation of the WHO Framework Convention on Tobacco Control (FCTC).

Moderated by Guillermo Paraje, a renowned anti-tobacco economist at Universidad Adolfo Ibáñez, Chile, and Tatiana Villacrés and Rosa Sandoval of PAHO, the webinar was fast-paced and highly participative, despite being online.

Tax shares are decreasing

The webinar began with a presentation on the status of regional advances in tobacco taxes according to the WHO’s ‘Global Economic Epidemic for 2023’ report.

The first speaker, Ms Sandoval, described how many countries in the region, having initially moved forward in the first decade of this century with a commitment to ensuring best practices in tobacco control, are now showing a lag in implementing tax increases, as well as a lag in banning advertising and promotion.

Tax increases and advertising bans happen to be the two least implemented tobacco control measures of the six measures comprising the FCTC MPOWER policy package. The package assists in the country-level implementation of effective interventions to reduce tobacco demand, as ratified by the FCTC. The four other measures are: monitoring tobacco use and prevention policies, protecting people from tobacco smoke, offering help to quit tobacco use, and warning about the dangers of tobacco.

In the case of the Americas, while tobacco tax increases were successfully implemented in Argentina, Chile, and Nicaragua – where indirect taxes now represent over 75% of total retail price – 12 countries actually decreased their total tax share, despite a clear trend of higher cigarette prices due to inflationary pressure. These 12 countries were Belize, Bolivia, Brazil ¹, Colombia, Ecuador, El Salvador, Guatemala, Guyana, Honduras, Jamaica, St Lucia, and the United States.

This increased price differential, which was not accompanied by an increase in taxes, has been a hidden boon to the tobacco industry. The speaker advised that countries should therefore be constantly monitoring price and tax changes to adjust for inflation, wages, and income growth, in order for policies to continue being effective against tobacco usage.

On the other hand, in the opinion of this newsletter, these countries could argue that being too ‘aggressive’ with implementing tax increases can only lead to elevated levels of illicit trade. A case in point is Australia, which has implemented almost all of the MPOWER measures. Unfortunately, these measures have also led to one of the highest illicit trade markets of developed nations.

Taxes eroded by inflation

The next presentation was given by Ceren Ozer and Chris Lane, an economist and consultant, respectively, for the World Bank. They focused on the impact of inflation on health taxes and supported the previous intervention’s conclusion that specific health taxes on tobacco, alcohol, and sugar- sweetened beverages (SSBs) are usually eroded by inflation.

In addition, the reduction of excise revenue is also diminished as a result of declining sales tax revenue when adjusted to inflation. Their conclusions were based on a report at www.worldbank.org/en/programs/the-global-tax-program/publication/gtp-health-taxes-kn-series.

The professionals posited that 58% of the 43 countries levying SSB taxes since 2019 face high inflation-related vulnerability. Specifically for cigarette taxes, the real value of an excise tax can be maintained by indexation of prices to consumer price indices or incomes. However, only a little over one fourth of the countries (33 out of 126) that levy cigarette taxes have the possibility of automatic indexation and, as of 2023, eight of these countries are in the Latin American region.

The presentation continued with a detailed explanation of policy pros and cons around the world and specifically, in Latin America, reaching the logical conclusion that tax authorities should regularly monitor the impact of inflation, wages, and income growth on the affordability of products that are harmful to health.

1 - Still above 75%, at 80.2%, although slightly lower than in 2021 when it was closer to 83%.