Earmarking tobacco tax
revenues
Anne-Marie Perucic
Economist
Prevention of Noncommunicable Diseases
WHO
1|
Why tax tobacco?
 Public health justification:
– Tobacco tax increases that increase prices are the most-cost
effective policy for tobacco use reduction.
 Economic justification:
– Correcting for negative externalities and imperfect information.
 Public finance justification:
– Easy to collect (few producers),
– Demand price-inelasticity => increased taxes increase revenues.
 Win-win policy: for revenues and public health
2|
Types of consumption (indirect) taxes imposed on
tobacco products – Which is used for earmarking?
 General tax on consumption: Value-Added Taxes or Sales
Taxes
 general tax on consumption, applied (usually) as a single rate and on a
broad range of goods and services
 Excises
 selective taxes, confined to a narrow range of goods, the consumption
of which governments wish to discourage, for example, for health and
environmental reasons – "sin taxes"
 Customs/import Duty
 tax on a selected commodity imported in a country and destined for
domestic consumption (i.e., the goods are not in transit to another
country)
3|
Earmarking practices around the world
About 30 countries from all regions of the world earmark tobacco tax revenues
for health purposes
Tobacco control
NCDs
Health
Insurance/UHC
Iceland, Iran,
Switzerland,
Viet Nam
Algeria (cancer control Congo, Egypt,
and other health
Philippines
programmes)
Costa Rica (incl.
tobacco control), Nepal,
Panama (incl. tobacco
control)
Tobacco earmarking recently terminated in Mongolia and Poland.
Source: WHO Report on the Global Tobacco Epidemic, 2015.
4|
Other/more general
health programmes
Argentina, Bangladesh,
Cape Verde, Colombia,
Comoros, Côte d'Ivoire,
El Salvador, Guatemala,
India (incl. tobacco
control), Indonesia,
Jamaica, Madagascar,
Korea, Romania,
Thailand, Macedonia,
USA
Revenue potential from tobacco taxes
 Recent publication in the WHO Bulletin (February 2016)
shows that:
– In 2014, the total amount of excise revenue generated globally
from the sale of cigarettes was estimated to be $ 402 billion
international dollars in Purchasing Power Parity terms (or US$
328 billion).
– Raising cigarette excise by 1 international $ per pack (US$ 0.8)
in all countries would increase revenue by 47% giving an extra $
190 billion international dollars (US$ 141 billion) to governments.
Source: Goodchild M, Perucic AM, Nargis N. Modelling the impact of raising tobacco taxes on public health and
finance. Bulletin of the World Health Organization 2016;94:250–257.
5|
Nine countries case studies
Summary analysis
(upcoming WHO publication)
Arguments for and against earmarking
Pros
Cons
Population more supportive of tax increases
when they know they will be used for
targeted social programmes
Introduces rigidities in the budgetary
process, limiting availability of funds for
alternative and (sometimes) more urgent
purposes.
Help guarantee funding for under-resourced
programmes, in this case, health. Can also
lead to better health outcomes
Leads to waste of resources when not
carefully planned by recipient
institution/programme
Closer connection between tax and
expenditure: increases accountability
Pro-cyclical, susceptible to booms and busts
Closer connection between tax and
expenditure: increases efficiency of public
expenditure
Leads to fragmentation of pooling and lack of
integration of health policy in other sectors
Can educate people about the cost of a
particular program/service
Will eventually shrink as consumption of
harmful/unhealthy products goes down
Compiled in Earmarked tobacco taxes: lessons learnt from nine countries. WHO 2016.
7|
Analysis of 9 country experience in
tobacco tax earmarking
 Diverse countries with diverse backgrounds with recent
(Botswana 2014) or long history in earmarking tobacco taxes
for health (Iceland 1972).
 Nine countries are: Botswana, Egypt, Iceland, Panama,
Philippines, Poland, Romania, Thailand and Viet Nam.
8|
Fund manager and expenditure
Fund
manager
Expenditure
9|
Botswana
Egypt
Ministry of
Health
The
Directorate
General
of Health
Authority (DH)
of Health
Insurance
Health
promotion
Iceland
Students Tobacco
medical
control and
insurance general
health
promotion
activities
Panama
Philippines
Ministry of Department
Health
of Health
(MINSA)
(DOH)
Romania
Thailand
Vietnam
Ministry of
Health
(MOH)
Thai Health
Promotion
Foundation
(ThaiHealth)
Ministry of
Health/
VNTCF –
Tobacco
Control
Fund.
Autonomous
fund manager
supervised by
Prime Minister.
NCDs
and
tobacco
control
UHC
Health
systems
infrastructu
re, public
health
programs
Health
promotion
Semiautonomous
Intersectoral
Managmt
Board.
Tobacco
control
Earmarked funding and magnitude of funds
Country
Year earmarking
Funding source
tobacco tax established
Estimated annual total funds from
earmarked tax
Annual funds from
tobacco earmarked tax
as percentage of general
government expenditure
on health (2013)
NA
General government
expenditure on
health as
percentage of GDP
(2013)
3.1%
Botswana
2014
30% of production cost of tobacco
products
2014–2015: BWP 4 million (US$ 0.48
million)
Egypt
1992
10 piasters on each pack of 20
cigarettes
2013–2014: EGP 392 million (US$ 52.06
million)
Earmarked taxes only 1.8% of total taxes
on cigarettes
2014: ISK 108.3 million (US$ 0.89 million)
1.086%
2.1%
Iceland
1972 (first)
0.9% of gross tobacco sales value
2001 (latest amendment) (2001)
0.083%
7.0%
Panama
2009
50% of selective consumption tax on
cigarettes and other tobacco products
2014: US$ 27.8 million
1.322%
5.2%
Philippines
1997 (first)
2012 (latest)
85% of incremental revenue from excise 2014: PHP 50.18 billion (US$ 1.18 billion)
on tobacco and alcohol products
NA
1.4%
Poland
2000 (terminated in 2015) State budget (0.5% of the value of the
excise tax on tobacco products)
2013: PLN 1 million (US$ 0.316 million)
from general budget
0.001%
4.6%
Romania
2005
Earmarked tax on tobacco and alcohol
2014: Lei 1.1 million (US$ 0.33 million);
10 €/1000 cigarettes, 10 €/1000 cigars, 14.4% of total health budget
cigarillos and other tobacco products for
smoking, 13 €/kg of smoking tobacco
0.004%
4.2%
Thailand
2001
2% surcharge tax on tobacco and
alcohol
2014: THB 4064.74 million (US$ 125.15
million)
1.78% of Ministry of Health budget and
1.84% of National Health Security Fund
0.932%
3.7%
Viet Nam
2012
Compulsory contribution by tobacco
manufacturers and importers to Viet
Nam Tobacco Control Fund : 1% of
factory price effective from 1 May 2013,
(1.5% in 2016 and 2% in 2019)
2014: VND 299.171 billion (US$ 13.91
million)
0.335%
2.5%
10 |
0.5% of national health budget
Lessons learned
Lessons learned from earmarking tobacco tax
revenues
 Common threads for success:
– Earmarked tax revenue from an additional tax (not taking away from
existing revenues/expenses),
– Seeking policy opportunity to gain political support (e.g. WHO FCTC),
– Strong partnerships and policy synergies (intersectoral, mainly MoH and
MoF, but also with civil society),
– Careful presentation of arguments in favour of earmarking and sound
proposal based on evidence and needs,
– Effective countering strong opponents (Tobacco industry, government
sectors influenced by TI).
12 |
Lessons learned from earmarking tobacco tax
revenues
 Further discussion:
– Investment in prevention (incl. tobacco control) very cost effective and
cheap (cost of scaling up tobacco control 0.11$ pc*),
– Revenue potential of tobacco taxes not insignificant (and taxes should be
increased on a regular basis),
– Earmarking tobacco tax revenues augments the positive health impact of
tobacco taxes,
– Earmarking tobacco tax revenues for prevention: strong link between tax
payer, revenue and benefit,
– Earmarked amounts: relatively small amounts make a difference and do
not introduce significant rigidities,
– Autonomous/semi-autonomous fund managers: independence and
accountability.
13 |
* Source:Scaling up action against noncommunicable diseases:
How much will it cost? WHO 2011. (for 42 LMIC)
Tobacco excise tax revenues and
expenditure on tobacco control
Governments collect nearly US$ 270 billion in tobacco excise tax revenues each year, but
spend around US$ 1 billion combined on tobacco control
91% of this is spent by high-income countries
200.35
US$ per capita
Per capita excise tax revenue
from tobacco products
Per capita public spending
on tobacco control
37.44
1.26
High-income
0.03
Middle-income
Source: WHO Report on the Global Tobacco Epidemic, 2015
14 |
7.32
0.004
Low-income
Specific country
experiences/success stories
Country examples:
Australia
 Following large increases in tobacco taxation and tax revenues in 1983, the
Tobacco Act passed in 1987 in Australian State of Victoria led to the establishment
of the Victorian Health Promotion Foundation which would administer tax revenues
to be used for health proportion and tobacco control programmes.
 Parts of the funds were initially used to replace tobacco sponsorship and
promotion funds for sports and racing organizations, therefore facilitating the
implementation of bans of tobacco promotion advertising and sponsorship.
 This led the way for other States to replicate the model. Their model also inspired
other countries such as Thailand.
 Earmarking was repealed later in 1997 (found unconstitutional for states to collect
tobacco, alcohol and petrol taxes) but the health foundations kept receiving
funding from the Federal (source of funding changed).
16 |
Source: The establishment and use of dedicated tobacco taxes for health.
Manila: WHO Regional Office for the Western Pacific Region; 2004.
Country examples
Thailand
 Thailand’s Health Promotion Foundation Act of 2001 established that a
2% surcharge on tobacco and alcohol excise would be earmarked to
secure funding for the Foundation (ThaiHealth)
 ThaiHealth spent more than $US 100 million on health promoting
activities a year ($US 125 million in 2014) covering a wide range of
activities (including tobacco and alcohol control, traffic injury
management, promotion of physical exercise and sports for health, and
promoting healthy eating)
 ThaiHealth is widely regarded as a model for ensuring that health
promotion activities receive adequate support. It has inspired models
developed in other countries such as Viet Nam.
17 |
Source: Earmarked tobacco taxes lessons learnt from nine countries.
Upcoming. WHO 2016.
Country examples:
USA - California
 California funded its comprehensive state tobacco control program with an
earmarked tobacco tax since late 1988, following an increase in its taxes:
0.25$ per pack
 Annual budget of 100 million US$.
 This resulted in reduction of adult and youth smoking prevalence leading to
lung and bronchus cancer rates in nearly falling four times more than in the
rest of the United States
 Estimated impact: 700 000 person-years of life saved and over 150 000
person-years of treatment averted for the 14.7 million male California
residents alive in 1990.
 Net healthcare savings estimated to be $107 billion in 1990 dollars (only
men covered).
18 |
Source: Miller LS et al. Evaluation of the economic impact of California’s Tobacco
Control Program: a dynamic model approach. Tobacco Control 2010; 19(Suppl
1):i68-i76.