Where to next for countries with high tobacco taxes? The potential for greater control of tobacco pricing through licensing regulation

Abstract

Optimising the taxation of tobacco products should be among the highest priorities for health and hence economic policy in every country. The WHO Technical Manual on Tobacco Tax Policy and Administration released in April 2021 provides invaluable advice, including 26 best practice recommendations on policy design, administrative efficiency and addressing industry tactics to circumvent tobacco tax increases. Introducing and increasing tobacco taxes is the most important tobacco control measure for any jurisdiction. The effects of simple tax structures, high tax levels, and frequent above-inflation increases in specific excise duties can be enhanced through strict controls on packaging (including pack size), product design, and discounting. However, even with such measures, tobacco companies can continue to undermine the effectiveness of tax policy by offering some products in their ranges at very low prices, as well as gradually and selectively increasing the prices of some but not all products after tax increases. This paper is aimed at policymakers in countries that have already adopted best practice tax policy. It explores the idea of wholesale price capping combined with retail licensing to address the problems of brand proliferation, dispersion of prices, cushioning and strategic under/overshifting of tax increases, thereby radically and sustainably increasing the effectiveness of tobacco tax policy while also raising additional tax revenue for governments by reducing industry profitability.

Going ‘Super Value’ in New Zealand: cigarette pricing strategies during a period of sustained annual excise tax increases

“…12 37 38 For example, Scollo and Branston propose setting a maximum wholesale price alongside excise tax increases, where any increased industry profits would be paid to the government. 39 Moving control over pricing from the industry to government would also enhance monitoring of industry cost structures and build on licensing requirements, such as imposing conditions on tobacco sales (eg, limiting pack numbers sold in a single transaction). 39 Regulation of tobacco prices could thus prevent undershifting, while also reducing tobacco companies' ability to profit from the policy.…”

“…Consequently, some tobacco control advocates have proposed setting industry pre-tax prices, to which they propose adding excise taxes, or establishing a minimum excise tax 12 37 38. For example, Scollo and Branston propose setting a maximum wholesale price alongside excise tax increases, where any increased industry profits would be paid to the government 39. Moving control over pricing from the industry to government would also enhance monitoring of industry cost structures and build on licensing requirements, such as imposing conditions on tobacco sales (eg, limiting pack numbers sold in a single transaction) 39.…”

Perseverance is innovation: the journey to successful tobacco tax reform

“…2 In this issue, Scollo and Branston offer a creative and plausible pathway to push tobacco taxation in countriesalmost always, high-income-already performing well on tax. 3 In fact, the greatest challenges with tax implementation are in low-tax countries, almost always low-income or middle-income countries (LMICs), which are also the ones with the most potential public health gain because that is where most smokers live. Moreover, LMICs are likely to benefit most from new tax revenues that can help to pay for the increasing burdens on health systems exacerbated by the COVID-19 pandemic and postpandemic recovery efforts.…”

“…Even the most comprehensive resource on tobacco economics, the National Cancer Institute Monograph 21 (with WHO), does not dedicate a section or sub-section to implementation 2. In this issue, Scollo and Branston offer a creative and plausible pathway to push tobacco taxation in countries—almost always, high-income—already performing well on tax 3. In fact, the greatest challenges with tax implementation are in low-tax countries, almost always low-income or middle-income countries (LMICs), which are also the ones with the most potential public health gain because that is where most smokers live.…”

Retail-focused tobacco control: equity and endgame implications

“…[5][6][7] Licensing schemes are essential to develop and enforce retail reduction and other retail tobacco control policies. 8 In the USA, no federal licence requirement exists and state and local requirements vary. A $297 penalty for a first violation of Food and Drug Administration's (FDA) sales-to-minor inspections is approximately equivalent to the average retail price of four cartons of cigarettes and more than the annual cost of a tobacco retail licence in most US states.…”