Background:Few studies
in middle income countries assess the effect of a sharp tax increase on
observed consumption of illicit cigarettes. The 2016 tax reform in Colombia
resulted in a 100% increase of the excise tariff for 2017. This study evaluates
the changes in penetration of smuggled products associated with the tax
increase nine months after it became effective. The policy of interest is the
excise tax increase effective in January 2017 (from 23 to 48 cents per 20
cigarette pack), the first jump in a two-year adjustment period.
Methods:Non-participant group is defined as smokers in 2016, since the
tax measure affects all smokers. Evaluation will use the results of a smoker survey in five Colombian cities in 2016 and a second one planned for September 2017, specifically designed to measure penetration of illicit trade. A matching
technique is used considering three dimensions: spatial, age and gender.
This provides an adequate comparison. By comparing individuals in the same
zone in each city of the same gender and the same age it can be
established to what extent the price increases (attributable to new tax
levels) are associated with consumption patterns.
Results:The 2016 survey
estimated a 3,5% penetration of illicit cigarettes, with significant
differences across cities. Price behaviour indicates that tax has not been fully transfered to
consumers yet, with a 22% annual hike (first semester average) but it is
getting closer to the expected result.
[Changes in price structure after tax reform]Conclusions:First wave results suggest that tax levels are not the only driver of
illicit trade, since cigarette taxes are the same for all the
country. Cities closer to the border and with weaker institutional conditions
are more prone to have consumers of smuggled cigarettes. This points at
the need to dedicate efforts to target tax administration efficiency to protect
revenues in those areas.