Tobacco tax evasion in Western Balkan countries: tax evasion prevalence and evasion determinants

Background and objectiveTobacco tax evasion undermines the goal of tobacco taxes as a tobacco control measure to make tobacco products less affordable, increases the health risks for those who smoke and decreases the government revenue. This paper analyses the tobacco tax evasion in six Western Balkan (WB) countries: Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia. The aim of this research is to estimate the size of the illicit market and identify the main determinants of tax evasion activities in the Southeastern European region.Data and methodsData from 2019 Survey on Tobacco Consumption in Southeastern Europe (STC-SEE) are used. STC-SEE provides uniquely comparable nationally representative data on smoking behaviour for adult (18–85 years old) population for each country. Tax evasion is defined on the basis of available information on tax stamps, health warnings, price and the place of purchase, in accordance with the previous research on tax evasion. In order to estimate the determinants of illicit purchases we use binary choice model of tax evasion.ResultsThe study finds that 20.4% of all current smokers in WB countries evade taxes on tobacco products, with evasion being much more frequent for hand-rolled (HR) tobacco (86.7%) than for the manufactured cigarettes (MC) (8.6%). While HR is predominantly illicit in all six countries, MC evasion varies significantly, with evasion being significantly higher in Montenegro and Bosnia and Herzegovina. Results further suggest that tax evasion is higher in the statistical regions where institutional capacities to tackle illicit trade are lower, in municipalities bordering countries with high MC evasion, as well as among smokers with low income, women and elderly. We also provide evidence that higher tobacco taxes and prices do not increase illicit consumption.ConclusionThe findings from the research suggest that in order to decrease tax evasion, governments should put additional effort to strengthen institutional capacities to tackle illicit tobacco markets. Furthermore, improving regional coordination in development and implementation of tobacco control policies, including the prevention of illicit market, is essential in lowering evasion in all WB countries. Finally, WB countries should regulate and enforce excise tax stamp requirements on the HR tobacco market to a much higher degree.

Differential price responses for tobacco consumption: implications for tax incidence

Increasing tobacco taxes is considered the most effective an cost-effective policy to reduce tobacco consumption. However, a common objection to tobacco taxes is that they tend to rely disproportionately on the poorest individuals since less affluent smokers incur proportionately greater expenditures on cigarettes compared with more affluent smokers. Such objections usually assume that all smokers throughout the income distribution react similarly to an increase in tobacco prices. But, if less affluent smokers are more sensitive to price changes (ie, they have a higher demand price elasticity), reductions in tobacco consumption should be higher at the bottom of the income distribution. This paper uses data from Argentina’s Household Expenditure Survey to estimate demand price elasticities for tobacco by income and age groups. Results indicate that less affluent smokers present higher demand price elasticities for cigarettes than more affluent ones. A 10% increase in cigarette prices would decrease consumption by 8.5% (4.4%) for the poorest (richest) smokers. In addition, young people are the most elastic group. These differential elasticities have relevant implications in terms of the distributional incidence of increasing tobacco taxes. As less well-off individuals reduce consumption relatively more, they bear a relatively lower tax burden. Thus, tobacco tax increases may not be regressive as is often believed. As a whole, this paper provides policymakers with relevant arguments for policy discussion and the public debate on common objections to increasing tobacco taxes.

The determinants of the demand for tobacco in Togo

This paper analyzes the relationship between the demand for tobacco, its price and the economic factors that may influence it. The objective is to understand the response of consumers to an increase in tobacco prices. The price increase is assumed to be caused by the effect of increasing tobacco taxes, which is a major tobacco control policy. This paper also analyzes the reaction of smokers to an increase in the prices of other goods in the economy. To achieve this objective, we estimate the elasticities of these factors through the tobacco demand models proposed in the literature. The price of tobacco, consumer income per capita, the price of goods such as food and health care, and the strengthening of anti-smoking laws are among the variables used to estimate the demand equations for tobacco. The results of the estimations indicate first that the demand for tobacco is highly elastic with respect to its price; the price elasticity is estimated at -1.368. Tobacco demand is also sensitive to consumer income and the strengthening of anti-smoking laws. In contrast, changes in the prices of other non-addictive goods in the economy, such as food, have no influence on the demand for tobacco products. This means that when the price of other products increases, smokers are likely to reduce the quantity of these products consumed in order to maintain their level of tobacco consumption.

Extended cost–benefit analysis of tobacco taxation in Brazil

BackgroundBrazil has experienced a persistent and substantial reduction in the prevalence of smoking in the population since 2006 due to increased taxes on tobacco and other tobacco control policies. Despite the effectiveness of these measures, however, the socioeconomic costs of smoking are still very high. Tobacco taxation in Brazil plays an important role among the measures adopted to curb tobacco use.MethodsThe study combines data from the National Household Sample Survey of 2008 and the National Health Survey of 2013 and applies cross-section, pooled, and probit estimations, to estimate price elasticities of tobacco consumption by distinct population cohorts. The paper presents a comprehensive cost–benefit analysis resulting from a one-time tax increase on manufactured cigarettes using estimated conditional price elasticity of cigarette consumption and probability of smoking by income and age quartiles.FindingsEach 10% price increase (BRL 0.54), due to higher tobacco taxes, reduces cigarette consumption by about 5%, and for poor smokers, it would lead to net income gains by about BRL 39.00 per month (in 2019 values). The highest net income effects were observed for the younger, aged between 15 and 29 years, and for middle-aged individuals, between 40 and 59 years old. Higher tobacco taxes lead to lower medical expenses on tobacco-related diseases and a longer, healthier and more productive life. Most importantly, this policy is progressive, as its economic effects are stronger for the poorer than for the richer according to the income quartiles.ConclusionsA tax increase that rises cigarette prices generates significant social benefits by reducing tobacco spending and medical expenses on tobacco-related diseases and raising future years of life and net income. The total benefits for the individual and the society go way beyond the public finance improvement.

Turning a threat into an opportunity: British American Tobacco’s weakening of the Protocol to Eliminate Illicit Trade in Tobacco Products

BackgroundPrevious research has outlined transnational tobacco company (TTC) efforts to undermine implementation of the Protocol to Eliminate Illicit Trade in Tobacco Products (Protocol) and evidence of ongoing TTC complicity in the illicit tobacco trade (ITT). However, the industry’s views on the Protocol and role in its development are not well understood.MethodsSystematic searching and analysis of leaked documents—approximately 15 000 from British American Tobacco (BAT) and 35 from Philip Morris International, triangulated via searches of online resources and interviews with five stakeholders across academia, international organisations, governments, civil society and the private sector.FindingsEvidence indicates that after privately viewing the Protocol as a significant threat (2003), BAT worked to influence its content, while publicly signalling support for it (2007–2012), and was largely satisfied with the final text. BAT successfully pushed for a non-prescriptive text which enabled further country-level TTC influence during the Protocol’s implementation phase. The final text also reflected other BAT policy preferences, including preventing outright bans on duty-free sales and intermingling, and making it difficult to sanction and hold tobacco companies accountable for ongoing involvement in the ITT. TTC representatives were present during early Protocol negotiations, despite rules against this, and BAT obtained draft texts before they were public and paid at least one delegate to support its position.ConclusionsBAT’s primary interest in shaping the Protocol was to minimise its financial and legal costs for BAT while maximising potential costs to small competitors. These findings raise concern about the Protocol’s ability to control the ITT, particularly given TTCs’ intention to influence ongoing national implementation. An effective Protocol is vital to controlling both the ITT and ongoing tobacco industry involvement in it and, in turn, governments’ ability to increase tobacco taxes and thereby save lives.

Making smoking history: temporal changes in support for a future smoking ban and increasing taxes in the general population of Denmark

BackgroundAn end date for smoking has been adopted in several countries and is now being discussed by governments all over the world. However, little is known about temporal changes in citizens’ support for a future smoking ban.AimTo examine temporal changes in support for a future smoking ban and for increasing taxes on tobacco in Denmark, and to explore whether these changes differ across sex, age, educational attainment, smoking status and between smokers with/without intention to quit.MethodThe study was based on two waves of ‘The Danish Capital Region Health Survey’ conducted in 2013 and 2017. The pooled study sample included 96 521 citizens aged ≥16 years old.ResultsPublic support for a future smoking ban increased from 30.6% in 2013 to 50.3% in 2017, whereas support for increasing tobacco taxes remained unchanged at 59%. Support for a future smoking ban increased significantly in almost all subgroups from 2013 to 2017: Support among daily smokers increased by 27% between 2013 and 2017. Support among never smokers was almost 2.63 times higher than among smokers in 2013 and increased further in 2017 (OR: 2013=2.63; 2017=5.13).ConclusionThis study indicates a readiness to support a future smoking ban and increasing tobacco taxes. Support for a future smoking ban has increased from 2013 to 2017 among both young people and adults. By 2017, about half of the population supported a future smoking ban and increasing tobacco taxes. Findings may help inform policy-making related to endgame strategies.

Illicit cigarette trade in the cities of Pakistan: comparing findings between the consumer and waste recycle store surveys

BackgroundConcerns about the magnitude of illicit cigarette trade have prevented the Government of Pakistan from increasing tobacco taxes. We estimated the proportion of illicit cigarettes sold in Pakistani cities. Moreover, we compared two methods for collecting cigarette packs and investigated if the illicit cigarette trade equates to tax evasion.MethodWe analysed cigarette packs collected from 10 cities of Pakistan using two methods: consumer survey based on a two-stage random sampling strategy to recruit adult smokers and photograph their cigarette packs and waste recycle store survey to purchase used cigarette packs. Cigarettes were considered illicit if any one of the following was absent from their packs: text and pictorial health warning, underage sale prohibition warning, retail price and manufacturer’s name. From the consumer survey, we also estimated the proportion of smokers who purchased loose cigarettes (illegal) and packs below the minimum retail price. Taxation officers (n=4) were consulted to assess their level of confidence in judging tax evasion using the above criteria.ResultsOut of 2416 cigarette packs in the consumer survey, 454 (17.8%; 95% CI 15.4% to 20.2%) were illicit. Similarly, out of 6213 packs from waste recycle shops, 1046 (16.8%; 95% CI 15.9% to 17.7%) were illicit; the difference was not statistically significant (p=0.473). Among consumers, 29.5% bought loose cigarettes and 13.8% paid less than the minimum retail price. The taxation officers considered the manufacturer’s name and retail price on cigarette packs as the most relevant criteria to detect tax evasion.ConclusionsOne in six cigarette packs consumed in Pakistan could be illicit. These figures are far less than those propagated by the tobacco industry. Collecting packs from waste recycle stores is an efficient and valid method to estimate illicit cigarette trade.