The Impact of Income and Taxation in a Price-Tiered Cigarette Market: findings from the ITC Bangladesh Surveys

Abstract

background Taxing tobacco is among the most effective measures of tobacco control. However, in a tiered market structure where multiple tiers of taxes coexist, the anticipated impact of tobacco taxes on consumption is complex. This paper investigates changing smoking behaviour in lieu of changing prices and changing income. The objective of the paper is to evaluate the effectiveness of change in prices (through taxes) and change in income in a price-tiered cigarette market. Method A panel dataset from the International Tobacco Control Bangladesh surveys is used for analysis. For preliminary analysis transition matrices are developed. Next, probit and multinomial logit regression models are used to identify the effects of changes in prices and changes in income along with other control variables. Findings Transition matrices show significant movement of smokers across price tiers from one wave to another. Regression results show that higher income raises the probability to up-trade and decreases the probability to down-trade. Results also show that higher prices raises the probability to up-trade and reduces the probability to down-trade. Although not significant, there exists a negative relationship between the probability to down-trade and the probability to intend to quit. Conclusion It is evident from the results that a pricetiered market provides smokers more opportunities to accommodate their smoking behaviour when faced with price and income change. Therefore, tiered structure of the tax system should be replaced with uniform taxes. Moreover, overall cigarette taxes need to be raised to an extent so that it off-sets any positive effects of income growth.

Tobacco Control Laws of South Asian Countries: A Quantitative-Comparative Analysis of Compliance with FCTC and their Effects on Smoking Prevalence

“…Pakistan has very complex tax system and different laws in its land as the proximities with Afghanistan border former Federally Administered Tribal Areas (FATA), Azad Jammu & Kashmir (AJK) territory and main-land where law enforcement has high variations, further aggravates the tobacco prevalence scenario and tobacco control performance. The poor performance despite the high proportion of excise tax in the lowest prices for cigarettes in the region are in conformity with the findings of other studies (Huq, Nargis, Lkhagvasuren, Hussain & Fong, 2018) which associate the success of tobacco control with the tax structure to control tier switching. Though taxation has been one of the most important and favorite intervention for the governments to control tobacco prevalence as well as raise revenue for different functions of the government.…”

Impact of tobacco price and taxation on affordability and consumption of tobacco products in the South-East Asia Region: A systematic review

“…One study each from Thailand 45 , Sri Lanka 46 , Indonesia 47 , and Myanmar 48 , reported positive or no association between price and consumption of tobacco products. In Bangladesh, two studies reported a positive 49 , 50 association between price/tax of tobacco products with their consumption.…”

“…The cross price elasticity often helps in indicating a shift in consumption to substitutes/ complementary products. Besides directly stating the cross price elasticity of tobacco products, few studies also linked the increase in the price of one tobacco product to the shift of tobacco consumers to other tobacco products or brands 46 , 50 . We, however, do not describe the findings of product shifting/substitution in detail in this study, and limit ourselves to reporting clear findings of cross price elasticity only.…”

“…A few studies reported the increase in consumption of one tobacco product in response to the increase in the price of another tobacco product (cross price elasticity). Other studies further linked the cross price elasticity to product or brand shifting as well 46 , 50 . Therefore, as per our stated secondary outcome in the protocol, we limited ourselves to reporting clear findings of cross price elasticity only.…”

Economics of tobacco control (part 3): evidence from the ITC Project

“…Bangladesh has a tiered tax system, with four tiers, in which low-priced cigarettes are taxed at a substantially lower rate than medium-priced and high-priced cigarettes. Huq et al find that, between 2009 and 2011/2012, the share of the lowest price segment has increased by more than 12 percentage points, as smokers have down-traded in response to higher prices 9. The different price tiers give smokers more flexibility of choice when faced with income shocks.…”