The Demand for Cigarette in Tanzania
and its Implication on Tobacco
Taxation Policy
Presented by
Ngeh Ernest Tingum
Co-authors:
Kidane Asmerom and Teh wei-Hu
Background
 Tobacco production and cigarette consumption ... one of the major
health issues in the world and Tanzania not an exception
 2012 estimates (WHO, 2012)
• 6 million deaths yearly
• 8 million by 2030

•
•


tobacco prevalence in Tanzania
25 to 64 years is 23%.
13 to 15 years
Male 3.8%
Female 0.4%
 EA region
 Male 29%
 Female 4 %
 Smoking causes huge economic burden to the society; especially for
a developing African country such as Tanzania
 to control diseases and death from tobacco use Tanzania signed a
pact to control tobacco production and cigarette consumption in
2007. However, government role not effective to date.
 One of the most effective ways of controlling the high rate of
cigarette consumption is to raise tobacco excise taxes (Chaloupka
et al., 2000).
 increasing excise tax on tobacco...not only reduce consumption but
may also help generate more revenue (WHO, 2010).
 Higher cigarette prices...reduce or quit smoking as well as initiation
rate.
Objectives of the study

estimate the demand function (elasticities)

impact of excise tax on cigarette smoking participation rate and
on the amount of consumption among smokers

simulation exercises on the impact of various excise tax rates on
tax burden and on government revenue
Brief Empirical Literature Review

The price of cigarette has proven to be one of the major
determinants of tobacco consumption


using both time series and cross section data
(Chaloupka and Warner, 1999; Berg and Kaempfer, 2001;
Nasser, 2003 and WHO, 2010)

Price changes affect affordability through limited income; it also
affects decision on whether smoke or not

most common form of cigarette tax is the ad volerum tax levied
on packs of cigarette

The rationale for using this form of tax is that incurs low
administrative costs (WHO, 2010)

smoking participation elasticity ranges from -0.499 for the poor
to -0.340 to the high income group suggesting that the poor
react more to price changes
Methodology and models Specifications
 Two part model (Hu et al, 1995; Mao et al., 2007)
 Equation 1: smoking participation equation
Prob (CSi  1) 

1
 c1  1 InP1  1 X1  1i
1
1 e

;
(1)
 Equation 2: smoking intensity equation
In (Qi CSi  1)  c2 2 InPi  2 X i   2i ;
 CSi
 2
is a binary variable which equals 1 if person currently smokes and 0 otherwise
 Pr ob CSi  1 probability that person currently smokes
 In Qi CSi  1 cigarettes smoked per month conditional upon smoking for person i
 Pi is the regional price of cigarettes faced by person i
 X i is a vector of other explanatory variables including gender, age, education, residence,
annual income proxied by expenditure
 1 and  2 are random error terms.
The overall demand for cigarette for person i is given as follows
E Qi   Pr ob CSi  1  E Qi CSi  1
3
Total price elasticity of the overall demand for cigarettes is obtained as
  sp si  (1 CS ) 1  2

 s p
 si
 CS
 1
 4
is the total elasticity
is the price elasticity of smoking participation
the price elasticity of smoking intensity conditional upon current smokers
the population mean of current smoking prevalence
price coefficient in Equation 1 and  2 is the price coefficient in Eqn 2
Data Description and Summary Statistics
Tanzanian household survey (Tanzania 2008).
The overall mean price per stick is 63.36 Tshs.
The estimated mean price among the high expenditure is the highest (67.18)
smoking prevalence rate is 15.95 percent. Highest among the low income group (16.40)
The smoking intensity is 7.08 sticks of cigarettes per day. Highest among the poor (7.81)
 Per capita expenditure is estimated to be 1.33 sticks per day.
Effect of price on smoking participation and intensity
Two part model - the participation which is based on the Logit model (eqn 3) and
the intensity which is based on OLS (eqn 4).
*, ** and *** indicate significance at 10%, 5% and 1% respectively.
Total elasticity
 An estimate of total elasticity is based on equation 4
 The std error of the total elasticity (eqn 5) is also estimated which enable to estimate CI
Total price elasticity for all income groups is -1.732. Thus, a 10% increase in the
price of cigarette leads to a 17.32% decrease in per capita cigarette consumption
For the poor, a 10% increase in the price will lead to a 6.69 percent decrease
low income group appear to respond less to price changes than the high group
Effect of tax increase on the number of smokers, on cigarette
consumption and tax revenues
smoking prevalence rate before tax increase 0.1595 while per capita consumption
was 1.33 cigarettes per day or 24.27 packs per year
Total cigarette consumption is 80.8 million packs per year , tax revenue of 37.54
billion Tshs using at adult Tanzanian population of 22 millions and adult smokers of
3.33 million (WHO, 2012).
Imposing a 10 percent increase in the price per pack
 Increase in cigarette tax price per pack will be 591.3 Tanzanian
shillings smoking prevalence will be reduced to 0.1573
 per capita consumption will be reduced to 20.06, total number of
adult smokers will be reduced to 3.28 million
 total annual cigarette consumption will be reduced to 65.8 million
and tax revenue will increase to 38.91 billion shillings
 the number of smokers will be reduced by 0.05 million (50,000)
 Cigarette consumption will be reduced by 4.21 million packs and
total tax revenue will increase by 1.37 billion Shillings
 changes are substantial as the tax rate moves from 5 percent to 10
percent compared to the movement from 15 to 20 percent
Changes in Cigarette Consumption and tax burden by expenditure groups
The pre tax estimates are based on the prevailing tax rate of 36.67 percent
The overall current cigarette tax rate per pack is 464.6 shillings per pack. The
corresponding tax for the poor is 447.0 shillings and systematically increases across
the expenditure/income groups
Conclusion
• adult cigarette smoking prevalence rate of Tanzania which is 15.75% as
being lower than the national averages of other countries
• little variability among the four expenditure groups
• The prevailing excise tax rate on the price of cigarette is only 36.67%
much lower than the 70.0% rate suggested by WHO
• In spite, cigarette smoking participation as well as the tobacco intensity
estimates show that Tanzanians tend to react to cigarette price
increase in the desired direction
• The elasticity coefficients appear to be much higher than the
corresponding values in Egypt, South Africa and China.
Based on the simulation results;
 an increase in tax rates will have a modest reduction on the number
of smokers
• But
 a substantial decrease in annual cigarette consumption as well as
increase in tax revenue
 Consumers’ response to tax increase appears to show much
variability when estimated by expenditure groups
 As expend increases, tax rate per pack also increases. high expend
groups appear to smoke high priced cigarettes
 However, the tax burden seems to be high for the poor
THANKS YOU
Study supported by
United States National Institute of Health