WHO Tobacco Tax Simulation (TaXSiM) model
About the WHO TaXSiM model
The Tobacco Control Economics team in the Department for the Prevention of Noncommunicable Diseases of WHO has been working collaboratively with Ministry of Finance officials around the world to improve the efficiency of their tobacco tax systems, promote public health, and generate sustainably higher tobacco tax revenues at least over the short-to-medium. As noted in the WHO Technical Manual on Tobacco Tax Administration, many countries have overly complicated tobacco tax systems which are prone to tax avoidance by manufacturers, and that fail to meet both the public health and revenue objectives of the government.
In addition, many high income countries and nearly all low and middle income countries still have the opportunity to substantially increase their tax rates and revenues from tobacco products. This is because tax rates on tobacco products in these countries tend to be quite low to begin with, and the consumer demand for tobacco products is relatively price inelastic – even in lower income countries. Strong tax administration is key to designing, implementing and monitoring effective tobacco tax systems, and this often requires administrations to build-up their level of technical and analytical capacity.
WHO’s work in this area of technical support to countries has therefore focused first on improving the analytical capacity of finance officials, and secondly on improving the administration capacity to implement successful tobacco tax reforms. The WHO Tobacco Tax Simulation (TaXSiM) model has been a key analytical tool in support of this work. Originally, the models were developed on an ad hoc basis with each country that WHO works with on tobacco taxation. These ad hoc models served to inform the development in 2013 of a beta version of the web-based TaXSiM model. This model was designed for users that have at least some basic working knowledge of tobacco taxation, and enables them to describe the current market and tax situation for domestically consumed cigarettes by each brand and market segment (e.g. cheap versus premium brands), and then to predict the impact of tax changes on the retail price of cigarettes, cigarette consumption, excise and total tax revenues generated by each brand and market segment over the following year. The objectives of model are to:
- Create an administrative database that can be periodically updated by finance officials and other users (economists, researchers) enabling them to assess the shape and dynamics of the cigarette market.
- Quantify the expected impact of proposed policy changes on the cigarette market with an emphasis on tobacco tax revenues, under a set of logical, evidence-based assumptions about the market’s behaviour.
- Enable finance officials and other users to assess the impact of tax or market changes more effectively and then to develop corrective actions where appropriate.
Since being launched in 2013, this beta version of the TaXSiM model has been tested and applied across different forums including regional workshops and country-level engagements by WHO and other tobacco control partners. Feedback from these applications has served as the basis for an updated version of the TaXSiM model that has now replaced the beta version on WHO's website. The update contains a number of new features including:
- Baseline and simulation forecast of number of adult smokers and adult smoking prevalence rate.
- The inclusion of figures highlighting key aspects of the cigarette market both at baseline and simulation.
- Numerous changes to the beta version making the updated model TaXSiM more user-friendly.
- WHO has also developed a beta version of a multi-year model which allows the user to assess the impact of a 3-4 year roadmap for tobacco tax reform.
Basic Data Needs
The WHO TaXSiM model is a data intensive tool that requires detailed information on the sale quantity and retail price of different brands. This type of data is usually available to Ministry of Finance and other government officials. Alternatively, there may be market survey data available, even just for different segments of the market (e.g. cheap, mid-price, premium). Of course, the more detailed the available data, the more precise and extensive can be the analysis.
Information on all indirect taxes applicable to tobacco products needs to be collected. These include excise taxes, Value-Add Taxes (or sales taxes), import duties, if applicable, and any other related surcharges or cesses. Note indirect taxes do not include the corporate income tax paid by manufacturers. Detailed information about each country’s tobacco tax system in 2016 can be found at http://www.who.int/tobacco/global_report/2017/appendix-ix/en/
The updated model also needs country-level data about the adult population and adult smoking prevalence. Data on adult population is available from several sources including https://esa.un.org/unpd/wpp/ Country-level data on adult smoking prevalence is available from http://www.who.int/tobacco/global_report/2017/appendix-ix/en/
The World Health Organization (WHO) has provided this model to help countries with tax policy analysis, impact assessment and decision-making. WHO cannot be held liable for any decisions that are made on the basis of results obtained from this model. Correct use of the model and any supporting documentation is entirely the responsibility of the user.