Tobacco control economics
Taxes, revenues and illicit trade
Challenges in implementing effective tobacco control measures still exist and need to be addressed immediately. For example, while tobacco taxes are known to be the most cost-effective tobacco control measure, countries encounter several challenges when a tax increase is at stake. Many countries have a complicated tax structure or a weak tax administration. Consequently, most are unable to monitor and analyze the market in order to increase their taxes, ensure compliance and achieve the main objectives of tax increases: sustainable higher revenues and higher tobacco prices (WHO technical manual on tobacco tax administration, 2010). Furthermore, it is difficult to document the level of illicit trade and production, especially without having monitored the market and conducting appropriate analyses. As a result, without analytical evidence, the arguments for tax-induced illicit trade are often used against tax increase proposals. Increasing taxes should not be concentrated only on cigarettes, the most commonly used tobacco product. All forms of tobacco should be taxed. New tobacco products are evolving in different shapes and types, as well as tobacco products that have existed for many years in some countries (e.g. India), thus bringing further challenges to tax administrations (WHO technical manual on tobacco tax administration, 2010).
Although tobacco and tobacco products generate tax revenues from domestic consumption and trade, the revenues from import duties have been falling globally due to trade liberalization and increasing regional and bilateral trade agreements. Consequently, the importance of excise taxes on tobacco products becomes greater from a revenue perspective as well as that of public health.