Fixed cigarette taxes leave smokers less wiggle room
The way that cigarettes are taxed in different countries can lead to prices that either vary widely from brand to brand, providing opportunities for smokers to switch to cheaper brands in response to boosts in cigarette taxes, or fall within a relatively limited range, leaving fewer money-saving options to turn to when taxes are hiked, report researchers in the journal Tobacco Control.
Increased taxes on tobacco products have been shown to be the most effective means for reducing tobacco use, but some tax structures are more effective than others, according to the report.
In countries where cigarettes are taxed based on a percentage of their price, known as an ad valorem tax structure, there is much greater variability in price, and so when taxes are raised, smokers can switch to less expensive brands rather than decrease or quit smoking.
But in countries where cigarettes are taxed based on quantity, known as a specific tax structure, as they are in the United States where taxes are a set amount per pack, when taxes are raised, all brands are affected the same and switching to cheaper brands has little effect on total cost. As a result, smoking rates and cigarette consumption are reduced.
“Cigarette tax structure can have a big impact on public health, and we know that the specific tax structure, like we have in the U.S., is the most effective for reducing smoking and decreasing opportunities for both manufacturers and smokers to avoid taxes,” says Ce Shang, senior research specialist in the University of Illinois at Chicago Institute for Health Research and Policy, and lead author of the study.
The ad valorem tax structure provides more opportunities for manufacturers to keep prices low and competitive by reducing the price of to the retailer or wholesaler, says Shang. In contrast, specific tax structure doesn’t leave as much room for manufacturers to reduce their prices as a way to reduce cost to the consumer, and so prices vary less.
Shang and colleagues analyzed tax structures and price variability for cigarettes in 17 countries using data from the International Tobacco Control Policy Evaluation (ITC) Project. The ITC Project conducts longitudinal surveys of smokers and tobacco users across 22 countries, covering over two-thirds of the world’s tobacco users.
The researchers found that compared to countries with a specific uniform tax structure, countries with “mixed-uniform” taxes (a combination of specific and ad valorem taxes) and tiered tax structures (where taxes are based on cigarette characteristics, i.e premium vs. discount brands, or cigarette length), had greater price variability.
The ad valorem tiered tax structure, used in Bangladesh, produced the greatest variability in prices for cigarettes compared to a specific uniform tax structure.
While cigarettes in the U.S. have a specific tax structure, tax structures for smokeless tobacco and cigars vary. “Since we know the specific tax is the best at reducing price variability and tobacco use, specific tax structure should be adopted for all kinds of tobacco,” Shang said.
UIC distinguished professor of economics Frank Chaloupka of the UIC Institute for Health Research and Policy; Geoffrey Fong of the University of Waterloo and Ontario Institute for Cancer Research; Mary Thompson of the University of Waterloo and Richard O’Connor of the Roswell Park Cancer Institute in Buffalo, New York, are co-authors on the paper.
The data collection for the ITC Project is supported by grants R01 CA 100362 and P50 CA111236 (Roswell Park Transdisciplinary Tobacco Use Research Center, and P01 CA138389, R01 CA090955) from the National Cancer Institute of the United States, Robert Wood Johnson Foundation (045734), Canadian Institutes of Health Research (57897, 79551, and 115016), Commonwealth Department of Health and Aging, Canadian Tobacco Control Research Initiative (014578), National Health and Medical Research Council of Australia (265903), the International Development Research Centre (104831-002), the International Development Research Centre (African Tobacco Situational Analysis), New Zealand Health Research Council (06/453), New Zealand Ministry of Health, Mexican Consejo Nacional de Ciencia y Tecnologia (Salud-2007-C01-70032), Bloomberg Global Initiative—International Union Against Tuberculosis and Lung Disease, the Chinese Center for Disease Control and Prevention, the French Institute for Health Promotion and Health Education (INPES), the French National Cancer Institute (INCa), Observatoire français des drogues et toxicomanies (OFDT), the Netherlands Organisation for Health Research and Development (ZonMw) (the Netherlands), German Federal Ministry of Health, Dieter Mennekes-Umweltstiftung and Germany Cancer Research Center (DKFZ), Cancer Research UK (C312/A6465), NHS Health Scotland (RE065), Flight Attendants’ Medical Research Institute (FAMRI), Glaxo-Smith Kline (3516601), Pfizer (Ireland), the Korean Ministry of Health and Welfare, the Malaysian Ministry of Health, and Thai Health Promotion Foundation. A Senior Investigator Award from the Ontario Institute for Cancer Research and a Prevention Scientist Award from the Canadian Cancer Society Research Institute for the third author and the SILNE Project is funded by the European Commission through FP7 HEALTH-F3-2011-278273.