Tobacco Taxes: A Win-Win for the Asia Pacific Region

This is a joint post with Kate McQueston.

This is a joint post with Kate McQueston.

While smoking is on the decline in Europe, the US, and other parts of the developed world, low- and middle-income countries are facing opposite trends in consumption. Currently 80% of all deaths attributable to tobacco occur in low- and middle income countries. Asia in particular faces high prevalence rates of tobacco use—the Western Pacific region accounts for 48% of world cigarette consumption.  Part of the significant consumption can be attributed to the increasing affordability of tobacco products. Between 2000 and 2010 the relative income price of cigarettes decreased by 34% in South-East Asia and 18% in the West Pacific. See the fourth edition of the World Tobacco Atlas (2012) for more information.

In the absence of an intervention—tobacco-use will cause the deaths of 267 million future and current smokers living in China, India, Philippines, Thailand, and Viet Nam. However, unlike other global health interventions, which require complex supply-chains, health systems, and highly trained health professionals to create an impact, interventions to reduce tobacco consumption can potentially avoid the health realm entirely.

A new report by the Asian Development Bank (ADB) endorses the use of tobacco taxes as a win-win for global health. They find that increasing the price of tobacco by 50% in the five highest burden countries in Asia would reduce the total number of tobacco users by almost 70 million and reduce total tobacco related deaths by almost 30 million. In addition to increasing the costs of smoking at the individual level, higher taxes also have the potential to generate income for the governments that implement them. The ADB report finds that for the five countries evaluated, the tax revenue generated would average 0.30% of GDP—amounting to over $24 billion in revenue per year.  To put this figure in perspective, the direct medical costs of treating tobacco related illnesses (though only a small portion of the total costs of tobacco on societies) has been estimated at over $6 billion in China and $1.2 billion in India.  The ADB report also finds that while the poorest bear part of the burden of increased taxes, they reap a substantial portion of the health benefits generated by reduced smoking. This is a significant issue for the organization to tackle, as two-thirds of the world’s poor live within 67 of the Bank’s member countries.

While increasing the price of tobacco has been shown to be an effective instrument to reduce consumption in previous studies (the Tobacco Free Union has produced numerous analyses on this, here), there remain difficulties in overcoming political economy issues that have hindered the implementation of increased taxes on tobacco products. Earlier this year, CGD and the Council on Foreign Relations issued a report, Incentives for Life: Cash-on-Delivery Aid for Tobacco Control in Developing Countries,  which suggests the use of a CGD favorite – Cash on Delivery Aid – as a means to encourage countries to create the necessary political will for implementation and enforcement of effective tobacco reduction policies—ideally including increased tobacco taxes.

As of yesterday, Indonesia announced it would raise tobacco excise taxes (though by only 5-7%).  More countries need to move on tobacco control in this way, and there’s little downside to increasing taxes. Kudos to the ADB for a timely and influential report, we’ll be watching for policy change and lending operations in support of this work.