Targeting the affordability of cigarettes: a new benchmark for taxation policy in low-income and-middle-income countries

• Published in: Tobacco control 2010-08, Vol.19 (4), p.325-330
• Main Author: Blecher, Evan
• Format: Article
• Language: English
• Subjects: Benchmarking; Benchmarking - methods; Benchmarks; Cigarettes; Commerce - economics; Consumer economics; Consumption; Developing Countries - economics; Economic growth; Excise taxes; GDP; Gross Domestic Product; Humans; Income; Income taxes; Low income groups; Per capita; Prices; Public health; Public Policy; Retail prices; Security services; Smoking - economics; Smoking Cessation - methods; Smoking Prevention; South Africa; Tax incidence; Tax rates; Taxation; Taxes - economics; Tobacco industry; Tobacco taxes; Total taxes
• ISSN: 0964-4563; 1468-3318
• DOI: 10.1136/tc.2009.030155

ObjectivesTo investigate the appropriateness of tax incidence (the percentage of the retail price occupied by taxes) benchmarking in low-income and-middle-income countries (LMICs) with rapidly growing economies and to explore the viability of an alternative tax policy rule based on the affordability of cigarettes.DesignThe paper outlines criticisms of tax incidence benchmarking, particularly in the context of LMICs. It then considers an affordability-based benchmark using relative income price (RIP) as a measure of affordability. The RIP measures the percentage of annual per capita GDP required to purchase 100 packs of cigarettes. Using South Africa as a case study of an LMIC, future consumption is simulated using both tax incidence benchmarks and affordability benchmarks.ResultsI show that a tax incidence benchmark is not an optimal policy tool in South Africa and that an affordability benchmark could be a more effective means of reducing tobacco consumption in the future.ConclusionsAlthough a tax incidence benchmark was successful in increasing prices and reducing tobacco consumption in South Africa in the past, this approach has drawbacks, particularly in the context of a rapidly growing LMIC economy. An affordability benchmark represents an appropriate alternative that would be more effective in reducing future cigarette consumption.