The rewards, risks and challenges of regional tobacco tax harmonisation

Abstract

Combining international relations theory and a technical discussion of tobacco taxation, we examine prospects for regional tobacco tax harmonization and how it might heighten the positive effects of taxation for public health. The specific rewards of harmonized tobacco taxation that follow "best practices" might reasonably include increased tax revenue, higher prices for tobacco products and related decreases in tobacco consumption and/or smoking prevalence. Harmonization, however, is often politically and technically challenging as each region has political and economic idiosyncrasies that create multiple, and often conflicting constraints on tax harmonization. For example, governments must overcome different types of collective action problems to agree politically on harmonized policy. Though there is no "one size fits all" approach, we find that setting appropriate and realistic goals and developing reasonable expectations are important for success.

Impact of cigarette price differences across the entire European Union on cross-border purchase of tobacco products among adult cigarette smokers

“…The most recent EU tobacco tax reform which raised the tax floor on cigarettes has been projected to reduce cigarette price differences as well as tobacco consumption within the EU 13 16. Increasing tobacco taxes reduces tobacco use because of decreases in smoking initiation, increases in smoking cessation, and reductions in daily cigarette consumption among those who still continue to smoke 4 6.…”

“…Furthermore, the specific component of the excise duty on cigarettes must be at least 7.5%, and up to 76.5% of the total tax share. It is expected that the relatively large increase in the excise tax floor under the new tax Directive may help to narrow current differences in tobacco taxes and prices,11 13 which in turn may reduce any economic incentives for consumers to engage in cross-border purchases. (2) The Tobacco Products Directive (TPD; of 21 March 2014), proposed to become operational by May 2016, provides a mandate for stronger regulation of the manufacture, marketing and sales of tobacco products, including cross-border sales 17.…”

Illicit cigarette trade in South Africa: 2002–2017

“…It is unlikely that there is much tax avoidance in South Africa due to cross-border shopping, since cigarette prices in neighbouring countries are either similar or higher, as a result of a common excise tax in the Southern African Customs Union (South Africa, Botswana, Lesotho, Namibia and Swaziland). 5 Other forms of tax avoidance in South Africa are minimal. There are no duty-free shops, aside from those at airports.…”

Modelling the implications of regular increases in tobacco taxation in the tobacco endgame

“…However, potential for smuggling is higher in countries that are in close proximity to other countries with much lower taxes (eg, in Europe). While measures to address tobacco industry supply of tobacco to the illicit market could be helpful, regional tax harmonisation31 could also reduce incentives for large-scale smuggling of tobacco. Our modelling also suggests that while rapid increases in illicit trade may initially counter the price effects of tax increases, the magnitude of long-term reductions in smoking prevalence will far outweigh any short-term effects of increases in illicit trade, if taxes are regularly increased.…”