1 / 8

Mark Goodchild Economist Tobacco Free Initiative goodchildm@who.int Bangkok March 2012

Workshop on Tobacco Taxation, Bangkok, 26-30 March 2012. Types of taxes on tobacco products. Mark Goodchild Economist Tobacco Free Initiative goodchildm@who.int Bangkok March 2012. Tobacco Taxes: A Taxonomy. Import duties:

marvel
Download Presentation

Mark Goodchild Economist Tobacco Free Initiative goodchildm@who.int Bangkok March 2012

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Workshop on Tobacco Taxation, Bangkok, 26-30 March 2012 Types of taxes on tobacco products Mark Goodchild Economist Tobacco Free Initiative goodchildm@who.int Bangkok March 2012

  2. Tobacco Taxes: A Taxonomy • Import duties: -designed to protect domestic producers from foreign competition. - are being phased out under trade rules due to their "discriminatory" nature. - other sources of revenue will need to increase to compensate. • Consumption taxes: -apply to a broad range of goods and services. - the aim is to generate revenue in a non-distortionary manner. • Excise taxes: - apply to selected commodities (tobacco, alcohol, petrol, etc). - historically the main aim has been to earn revenue. • Note tobacco companies also pay corporate income taxes. Types of Taxes on Tobacco Products. Workshop on Tobacco Taxation, Bangkok, Thailand, 26-30 March 2012.

  3. Tobacco Excise • Tobacco excise has been seen as an efficient way to generate revenue because: -Demand is relatively inelastic and there are few close substitutes. - There are generally few suppliers at least in terms of the consumer market. - Tax increases on tobacco do not risk damaging economic growth (e.g. unlike fuel or income tax increases). • Tobacco excise can account for as much as 10% of Government revenue in some countries. • More recently they have also been recognized as a way to encourage healthy behaviour. The Parties to the FCTC: "recognize that price and tax measures are an effective and important means of reducing tobacco consumption by various segments of the population, in particular young persons". Types of Taxes on Tobacco Products. Workshop on Tobacco Taxation, Bangkok, Thailand, 26-30 March 2012.

  4. Tobacco Excise Systems • There are 3 key components to any tobacco excise system: 1.type (i.e. specific, ad valorem or mixed options). 2. structure (i.e. uniform or multiple/tiered rates). 3. base (ex-factory/CIF price, retail price, product characteristics, etc). • Each component can have a significant impact on the effectiveness of tobacco excise policy and implementation. • Multiple rates are designed to favour traditional producers or to keep the price low of products used by the poor, but they have serious side-effects by: - incentivizing manufacturers to manipulate the system (tax-induced evasion). - leading to tax-induced substitution among products by consumers. - limiting future policy options by creating political resistance to change. Types of Taxes on Tobacco Products. Workshop on Tobacco Taxation, Bangkok, Thailand, 26-30 March 2012.

  5. Specific versus Ad Valorem • Specific excise is applied as a monetary value per quantity (weight, pack, etc): - Easy to administrate as only the production volume needs to be known. - Tends to increase final prices by relatively more than ad valorem due to tax over-shifting and so leads to bigger reductions in consumption. - But creates incentives for upgrading effect where industry gains more. - Also reliance on specific excise can lead to increased market concentration. • Ad valorem excise is applied as a percentage of the value of the product: - Earns more revenue from premium brands, self-adjusts to inflation, and is a disincentive to product upgrades. - But is susceptible to undervaluation of the tax base and can also lead to price reductions. - More likely to lead to consumer substitution. Types of Taxes on Tobacco Products. Workshop on Tobacco Taxation, Bangkok, Thailand, 26-30 March 2012.

  6. Mixed Excise Systems • Mixed systems have both a specific and an ad valorem component to them. • The specific component can act as a "floor" or minimum excise that is paid by cheapest brands in the market. • Mixed systems embody the benefits of both types of taxes: - Specific component reduces under-valuation by cheap brands and incentives for consumers to trade-down. - Ad valorem component earns revenue from premium brands and reduces the incentive for producers to upgrade. • But they are also more complex and so require a high level of technical/administrative capacity. Types of Taxes on Tobacco Products. Workshop on Tobacco Taxation, Bangkok, Thailand, 26-30 March 2012.

  7. Tobacco Excise Strategies • The short-term goal is often just to shift from tiered to uniform excise system. Note this shift alone can generate significantly more excise revenue. • Medium-term strategies can vary depending on admin capacity, supporting legislation, market conditions, and policy objectives: - Specific is easier to administrate as avoids the valuation problem. - Specific narrows price gaps by effecting cheapest products the most. - Ad valorem generates more revenue from premium segment of the market. • Continue increasing tax rates on tobacco over the long-term in order to: - Reduce affordability especially for the youth population. - Maintain/increase excise revenues as consumption declines. Types of Taxes on Tobacco Products. Workshop on Tobacco Taxation, Bangkok, Thailand, 26-30 March 2012.

  8. Thank you http://www.who.int/tobacco/economics/en/ Types of Taxes on Tobacco Products. Workshop on Tobacco Taxation, Bangkok, Thailand, 26-30 March 2012.

More Related