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Asian Tribune is published by E-LANKA MEDIA(PVT)Ltd. Vol. 20 No. 83

Lessons from tobacco taxation can serve developing countries

By Manjari Peiris

At a conference hosted by the World Bank on the pressures developing countries face to lower tax rates and shrink their tax base while also fighting tax avoidance and evasion, Jason Furman, Chair of the Council of Economic Advisors to US President, Barack Obama, emphasized that the most important unsung piece of public health legislation of the Obama administration has been the increase in the Federal cigarette tax from USD $0.39 to USD @1.01 per pack.

He further stated that these dynamics undermine the ability of developing countries to implement critical government projects as well as programs to serve the poor.

Furman identified six lessons learned from smoking in the US and the changes in smoking rates following the 2009 tobacco tax increase.

Smoking plays a major role not just in death, but also in the inequality of death - over the last 25 years, the rate of age 50 and older below the poverty line who have ever smoked has grown while the rate of adults age 50 and older above the poverty line who have ever smoked has decreased in contrast, smoking rate for adults ages 18-40 have declined substantially regardless of poverty status and smoking rates for people in poverty are only slightly higher than for those not in poverty.

The relationship between tobacco prices and cigarette smoking indicate that a 10 percent increase in cigarette prices will lead to a 3 to 7 percent decline in smoking, with half of the reduction coming from existing smokers smoking less and the other half from a decline in the number of smokers.

Cigarette taxes play an important role in cigarette prices - prior to the year 2000, the value of tax increases was weak and eroded over time in light of inflation, allowing cigarettes to remain highly affordable for smokers. Since 2000, cigarette taxes assumed a larger role in state and federal tobacco and health policy, producing sharp increases in tax rates and substantial increase in cigarette prices since then.

Cigarette taxes have large benefits for public health - increase of cigarette prices and taxes substantially reduce smoking rates and generate large improvements in public health by reducing smoking and smoking initiation, particularly among youth and young adults. These reductions, in turn, reduce the number of premature deaths due to smoking.

Tobacco taxes disproportionately benefit lower-income households - the health benefits of tobacco taxes far exceed the increase in tax liability, and these health benefits accrue disproportionately to lower-income households since smoking rates are higher among the poor. When the revenue raised by the tobacco tax is used for purchases that serve the poor, for example, expanding or improving health care services, the benefit to lower-income household is even greater.

It is also very important to tax similar tobacco products at similar rates - harmonizing the tax rate on different tobacco products is important because disparities can lead to substitution between tobacco products and can reduce the positive health effects of tobacco tax increases.

Beyond these six lessons, Furman emphasized that the use of taxation to reduce smoking rates "may be even more effective in developing countries" than it has been in the US.

Source of information: Campaign for Tobacco-Free Kids

- Asian Tribune -

Lessons from tobacco taxation can serve developing countries
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