Tobacco taxation in Lebanon: untapped revenue

1. Tobacco taxation in Lebanon: untapped revenue JadChaaban Assistant Professor Department of Agriculture Nisreen Salti Assistant Professor Department of Economics 46th Middle East Medical Assembly, May 2013

2. Tobacco taxation • Taxes as a measure of tobacco control • What have we learned? • Who benefits? • Debunking the classic counterarguments • Simulation results: what happens if we increase the tax in Lebanon?

3. Taxes as tobacco control Not the only measure of tobacco control BUT a recent review of over 100 articles in the literature shows it is: HIGHLY EFFECTIVE (Chaloupka et al, 2012) there are synergies to be capitalized on: COMBINING TAXES WITH OTHER MEASURES (Surgeon General, 2000, CDC, 1999)

4. What do we mean by “EFFECTIVE”? • Increasing cigarette price by 10% is associated with a: • 4% reduction in total cigarettes consumption in high-income countries • 7-8% reduction in middle- and low-income countries (IARC, 2011) • Price reduces consumption by: • inducing some smokers to quit • deterring non-smokers from taking up smoking (Lewit et al, 1981, Tauras et al, 2001) • reducing smoking among continuing smokers (Cavazos-Rehg et al, 2002)

5. What do we mean by “EFFECTIVE”? • Taxes lead to greaterreductions in consumption: • among lower-income smokers (Farrelly et al, 2001, Townsend et al, 1994) • among the youth (Jha & Chaloupka, 1999) • in the long-run (Keeler et al 1993, Becker et al, 1994)

6. Benefits of lower consumption • Reduced consumption is associated with: • lower burden of disease • productivity gains • private savings on smoking (for some) • private and public savings on healthcare expenditures • Who benefits most? • lower-income groups have a higher reduction in risk of disease, more savings, and a higher level of health expenditures averted (Murphy et al 2012)

7. Additional Benefit: tax revenues Tax Rev=P×Q Taxes increase Price and reduce Quantity Studies show that when taxes increase (P), tax revenues also INCREASE (Chaloupka 2012, IARC 2011): P×Q=Tax Rev

8. Tax scorecard  Effective at reducing consumption More effective among the youth and lower-income groups Has a long term effect Benefits from lower consumption accrue to the poor disproportionately Higher tax revenue SO WHY NOT TAX?

9. Tobacco taxation: myths Tobacco taxation: facts • Tobacco taxation is resisted because of fears that it will: reduce government revenues • Strong evidence that tobacco taxation: increases government revenue EXPERIENCES OF: Indonesia, Turkey, USA, Finland, Costa Rica, Australia, Singapore, Egypt, Malaysia…

10. Tobacco taxation: myths Tobacco taxation: facts favorite of local opponents to tobacco control • Tobacco taxation is resisted because of fears that it will: negatively impact businesses and lead to job losses in tobacco-related industries • Strong evidence that: job losses in tobacco-dependent sectors are MORE THAN COMPENSATED in other sectors (where money once spent on tobacco gets spent) (IARC 2011, Jha et al 2000, Warner et al 1996)

11. Tobacco taxation: myths Tobacco taxation: facts • Tobacco taxation is resisted because of fears that it will: adversely affect the poor • Ample evidence that: the poor are more responsive to price measures so they will reduce their consumption more estimates by income strata for India show greater savings for the poor increased tax revenues could target cessation programs for the poor

12. Tobacco taxation: myths Tobacco taxation: facts favorite of big tobacco companies • Tobacco taxation is resisted because of fears that it will: increase illicit trade in tobacco (smuggling, black market) • Strong evidence that : the problem is OVERSTATED: global illicit trade estimated at 12% (Joossens et al, 2010) even lower- and middle-income countries that have increased their taxes have seen higher tax revenues (World Bank, 1999)

13. What can we expect if we increase taxes in Lebanon? WE USE: nationally representative data on household consumption (including consumption of tobacco products) customs data on the import of tobacco products WE ESTIMATE: the nature and characteristics of demand WE CALCULATE: current expenditures on tobacco products and total tax revenue from tobacco

14. What can we expect if we increase taxes in Lebanon? FINDINGS ON SPENDING: Spending on tobacco products in 2010: 553 million USD Spending on imported cigarettes in 2010: 512 million USD (307 million packs)

15. What can we expect if we increase taxes in Lebanon? so taxes are around 50% of price for cigarettes 30% of price for shisha tobacco TAXES: taxes= excise(108%) customs(5%) VAT (10%) FINDINGS ON TAX REVENUES: total tax revenues in 2010 240 million USD smuggling estimated at 15%

16. What can we expect if we increase taxes in Lebanon? so taxes become around 73% of price (more in line with best practice for tobacco control) WE SIMULATE: excise is increased by 50% a new per pack specific tax is introduced: 0.17 USDper local pack 1 USD per imported pack 0.33 USD per shisha tobacco pack suppose that as a result, smuggling rate TRIPLESto45%

17. What can we expect if we increase taxes in Lebanon? WE FIND: CONSUMPTION drops by: 93.5% for local cigarettes 7% for imported cigarettes 25% for shisha tobacco CONSUMPTION drops more sharply for the youth GOVERNMENT REVENUES increase by: 52%(127 million USD) despite an assumed TRIPLING in smuggling rates

18. Where do we go from here? Government revenue at a time of huge budget deficit! Simulated gains are a LOWER BOUND: total gains from the tax also include productivity gains and public and private savings in health care costs and in the incidence of smoking related diseases (our next paper) Simulated gains are a LOWER BOUND: if we include synergy effects from introducing other tobacco control measures

19. Acknowledgements Joint work with RimaNakkash and HalaAlaouie This work benefited from support from the IDRC Forthcoming in Tobacco Control

20. Works cited Chaloupka, Yurekli and Fong, 2012 Tobacco taxes as tobacco control strategy, Tobacco control, March 2012, 21(2). US department of health and humans services. Reducing tobacco use: a report of the surgeon general, Atlanta, US Department of Health and Human Services, Public Health Service, CDC, National Center for Chronic Disease Prevention and Health Promotion, Office of Smoking and Healht, 2000 CDC. Best practices for comprehensive tobacco control programs—August 1999. Atlanta, US CDC, 1999. Cavazos-Rehg et al, 2002 Differential effects of cigarette price changes on adult smoking behaviours, Tobacco Control, Nov 2012 Jha P, Chaloupka FJ. Curbing the epidemic: governments and the economics of tobacco control. Washington, DC: World Bank, 1999 Keeler et al, Taxation, regulation and addiction a demand function for cigarettes based on time-series evidence, J Health Econ 1993, 12:1-18 Becker et al An empirical analysis of cigarette addiction, Am Econ Rev, 1994, 84: 396-418. Murphy et al, 2012, Tobacco taxation in India: an extended cost effectiveness analysis, Department of Global Health, University of Washington, DCP3. Joossens et al, 2010, The impact of eliminating the global illicit cigarette trade on health and revenue, Addiction, 105, 9: 1640-1649. World Bank, 1999, Curbing the epidemic: governments and the economics of of tobacco control, Washington DC.