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Using taxation to lower tobacco’s global toll

A woman's hand holding a lit cigarette

Taxation policy is one of the most powerful tools governments can employ to reduce smoking-related illnesses and death and to curb the enormous healthcare costs they generate. Article 6 of the Framework Convention on Tobacco Control (FCTC), a multilateral treaty that came into force in 2005, calls on countries around the globe to implement higher taxes as a disincentive to smoking.

Yet, many governments have been slow to act. As tobacco taxes in most developing countries remain low, consumption continues to rise, pointing to escalating human and economic costs in the future. What accounts for this apparent hesitation?

A prevailing and widespread perception is that previous research, overwhelmingly undertaken in industrialized countries, may not account for developing world conditions. This has fueled suspicions that raising tobacco taxes may not be as straightforward or effective in lower-income settings.  

Researchers supported by IDRC are breaking this impasse by generating data and working with policymakers to demonstrate how the relationships between taxation, tobacco, and population health play out in a multitude of developing world settings. 

Across Asia, Africa, and Latin America, researchers have been using sophisticated economic and epidemiological models to calculate the levels of tax increases required to dampen demand, and in turn, what this signifies for national disease rates and health costs. In several cases, researchers’ examinations of unique local conditions (such as the nature of national tax systems) have led them to propose new policy options of direct use to legislators seeking to limit tobacco use.  

Building on a strong track record

This work builds on IDRC’s 20-year track record in the field of global tobacco control, which includes research that was essential to the creation of the FCTC.  In the area of taxation, IDRC supported groundbreaking research that informed successful tobacco tax reforms in South Africa in the 1990s and in Jamaica in the early 2000s.

Most countries, however, have not acquired sufficient information to encourage the implementation of effective tobacco tax policies. IDRC has prioritized the generation of evidence to address this gap.

“We know that tobacco is bad for health and bad for economics, but we lacked quantification at the country level,” says Andrés Pichon-Riviere of the Buenos Aires-based Institute for Clinical Effectiveness and Health Policy (IECS), which studied the impacts of tobacco and taxation in seven Latin American countries.

“How many deaths does tobacco cause in Peru? How many years of life are lost due to smoking in Chile? What is the economic impact of the healthcare costs of tobacco in Mexico?”

Navigating obstacles

IECS faced significant obstacles when they started gathering this type of data. Since statistics on the prevalence of common conditions such as cancer, stroke, or heart attacks are not collected in most Latin American countries, researchers had to devise a means of calculating incidence rates by working backwards from death statistics. This became a starting point for modeling the health impacts of smoking and the subsequent economic costs.

The result of this process is a wealth of information detailing, for instance, the annual, continent-wide incidence of diseases attributable to smoking (for example, 910,771 new diagnoses of chronic obstructive pulmonary disease); the ranking of tobacco use as a contributor to healthcare costs (ranked number one in Chile); and the financial savings and averted deaths and incidences of disease that would result from a 50% increase to the cost of tobacco in Mexico. Beyond producing statistics that are crucial to making the political argument for higher tobacco taxes, a key outcome of IECS’ research was the creation of the model itself, which other countries can easily use by inputting local statistics.

It was also demonstrated that across Latin America, increased taxes would significantly delay the age when smokers adopt the habit. “The risk of starting smoking peaks around 16 or 17 years,” explains economist Guillermo Paraje of Universidad Adolfo Ibáñez in Santiago. “If you haven’t started by then, your risk of starting decreases, and it falls to almost zero by the age of 24.”

Finding the facts to build awareness

In other parts of the world, researchers faced similar impediments in their pursuit of location-specific data. In West Africa, despite low taxes and industry expansion contributing to rapidly rising tobacco use in much of the region, the impact of tobacco use was not even on the radar of politicians or citizens. Nafissatou Balde Sow of the Senegal-based Consortium for Social and Economic Research (CRES) recalls that compiling comparative statistics on tax policies and tobacco consumption required a massive networking effort across the bureaucracies of health and finance ministries in 15 countries.

But perseverance has led to a sea change in West Africa. Comparing statistical portraits from the 15 “country profiles” created by CRES clearly revealed that countries with higher tobacco taxes had lower consumption rates, and lower tobacco taxes correlated with increased use. This discovery formed the basis of CRES’ argument for higher tobacco taxes, which was presented to the Economic Community of West African States (ECOWAS).

Confronting complex tax regimes

Elsewhere, local anomalies presented a range of challenges. In China, researcher and business professor Rose Zheng reports that, before the impact of tobacco taxes could be studied, it was necessary to adapt an existing World Health Organization (WHO) model to accommodate the complexities of the Chinese tax system.

In India, the labyrinthine nature of state-level tobacco taxation had impeded coherent tax reform efforts. Tobacco taxes vary across state lines and classes of tobacco products are treated differently. The bidis and smokeless tobacco favoured by the poor are taxed at a lower rate than cigarettes, which in turn are subject to different taxation depending on the grade of cigarette. One consequence of this tiered system is that rather than deciding to quit, consumers who feel squeezed by higher tobacco taxes can simply move down the ladder and choose a lower-grade product.

Once researchers had mapped India’s sprawling patchwork of jurisdictional and category-based tax variations, they determined that all levels of taxes are insufficient to discourage tobacco use. “What we found is that tobacco taxes have not kept up with economic growth,” says Monika Arora of the Public Health Foundation of India. “Even the poor still find tobacco very affordable. We found that what we need to start influencing demand is an increase in taxes on cigarettes of 370% and a 100% increase for bidis.”

Good research leads to effective policymaking

The aim of these IDRC-supported projects is to produce solid evidence that is of practical use to policymakers. This goal is so central to the work of IECS in Latin America, for example, that researchers canvass legislators to determine which questions need to be answered before beginning their research.

An awareness of the political context of the research seems to be paying dividends. China, India, and Chile are countries where research results have had a direct impact on the formulation of new tobacco tax policies. Additionally, the 15 ECOWAS countries are considering a directive that establishes higher minimum tobacco taxes across West Africa. One benefit of this regional approach is that it discourages tobacco smuggling from low-tax to high-tax jurisdictions. The move comes on the heels of tobacco tax increases by some individual countries in the region.

The fact that some countries have not moved on tobacco control does not diminish the research’s importance. “Policy windows are quite short and very precise. When they open you have to move quickly. In some countries those windows remain closed, but the issue will be discussed someday. At that time, our studies will be there,” says Paraje.    

New capacity to tackle evolving issues

The work undertaken so far has also strengthened the capacity of researchers to respond to changing conditions. In India, researchers now have the data, contacts, and expertise to extend their support and influence to individual Indian states. West Africa’s growing expertise is reflected in the WHO’s recent engagement of a Senegalese researcher as a tobacco tax expert. Meanwhile, seasoned Latin American economists who have turned their attention to tobacco taxes have mentored younger scholars and honed their own skills in communicating findings to the general public.

This growing body of expertise will no doubt play a vital role as the tobacco control debate evolves. For example, the impact of elevated tobacco taxes on the poor is an area that begs further study. While a wide range of data indicates that low-income earners quit tobacco in large numbers when taxes rise, the poor who keep smoking face a heavy burden. Researchers are therefore pondering how governments can reduce this hardship by helping people break their dependency. IECS, for instance, is about to start research into the cost effectiveness of complementary anti-smoking initiatives in various Latin American countries.

In India, a massive counter-campaign by a tobacco industry determined to fight any increases in tobacco taxes suggests an urgent need for scientific evidence to play a larger role in public discussion. This is but one indication that the global struggle to control tobacco use through tax policy will demand continuing attention and support.   

Learn more about IDRC's investment in tobacco control research