Public health and fiscal impacts of radical decrease of ad valorem excise share in the mixed tobacco excise system
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Ukrainian Institute for Strategic Studies of the Ministry of Health, Tobacco Control Unit, Ukraine
Publication date: 2018-03-01
Tob. Induc. Dis. 2018;16(Suppl 1):A133
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ABSTRACT
Background:
Guidelines for implementation of the FCTC
Article 6 recommend implementing specific or mixed excise systems with a
minimum specific tax floor. Over recent years, many EU countries decreased the share
of ad valorem excise. The most radical changes have been undertaken in
2011-2013 in Sweden, Denmark and the Netherlands, where ad valorem excise rate
was decreased to 1%. The aim of the paper is to estimate public health and
fiscal impacts of radical ad valorem excise share decrease in the mixed excise
system.
Methods:
Data on tobacco excise rates, revenues and sales
were taken from the European Commission site. For average cigarette prices
calculations, consumer price index for cigarettes was used. Net-of-tax
cigarette price was calculated as: Average price - Specific excise - Average
price * (VAT + Excise) ad valorem rate.
Results:
After radical decrease of ad valorem excise share,
Sweden, Denmark and the Netherlands experienced rather common trends:
(1)
Tobacco sales substantially (by 10-20%) decreased;
(2) Tobacco revenues
stagnated;
(3) Tobacco industry increased net-of-tax cigarette price to much
greater extent than the specific excise increase and inflation rate. As the ad
valorem excise rate was substantially reduced, the tobacco industry could
increase profits by increasing the industry's part of the price.
Conclusions:
Radical decrease of ad valorem excise weight in the mixed excise system reduces
tobacco consumption. However, such policy does not increase tobacco excise
revenue, while tobacco industry apparently keeps its incomes as cigarette
prices rise by more than the tax yield. Countries with mixed tobacco excise
systems should be careful in changing their excise tax structures to keep
tobacco taxation a "win-win" policy. Large increase in the specific excise rate
is the most beneficial change in terms of public health, but ad valorem rates
do not need to be much reduced.