If tobacco only harmed smokers and if people were fully aware of its health care costs, the rationale for tobacco taxes would be less strong. However, there are several considerations in favour of taxation as a mechanism for reducing tobacco consumption. First, the many health risks impose costs on non-smokers and smokers, both because they increase overall health care spending in the United States and because even secondary exposure to second-hand cigarette smoke increases the risk of heart disease.  In addition, there is evidence that people do not fully consider the health risks of smoking and that many smokers would like to quit.  Policymakers should therefore reconcile understandable concerns about regressivity with the following: Among developed countries in the world, the United States has one of the lowest tax rates on cigarettes (see Table 6-3). In two countries, taxes are now above $3 per package – Denmark ($3.48) and Norway ($3.11). In the United States, the average federal and state tax on cigarettes in 1993 was 53 cents per pack. The combination of lower taxes on cigarettes and a higher standard of living (i.e. more money for goods) makes cigarettes much more affordable for Americans than for people in almost every other developed country. In the United States and other countries, federal, state, and local governments impose taxes on some or all tobacco products.
Types of tobacco products include cigarettes, pipe tobacco, cigars, hookah/shisha tobacco, snuff, etc. The report calls for increased tobacco taxes in the areas of public health, the economy and poverty reduction; shows how some countries have already achieved their ambition. Since excise taxes on cigarettes in the United States are uniform taxes rather than ad valorem taxes, inflation reduces the real value of the tax relative to price. Figure 6-2 shows the evolution of cigarette taxes and inflation-adjusted package prices. Excise taxes on tobacco are an effective tool for improving health and at the same time a reliable source of government revenue. Significant increases in tobacco taxes, which lead to higher prices for tobacco products, encourage current tobacco users to quit smoking, prevent potential users from starting to smoke, and reduce the consumption of those who continue to smoke, with the greatest impact on young people and the poor. As a result, higher taxes are effective in reducing deaths, disease and the economic costs caused by smoking. The positive impact on health is even greater when a portion of the revenue from tobacco tax increases is used to support tobacco control, health promotion and/or other health-related activities and programs. The experience of the diversity and evolution of taxes and tax structures applied to tobacco products around the world provides a comprehensive evidence base for identifying best practices in tobacco taxation.
These best practices include: the introduction of a relatively simple tax system with equal taxes on all tobacco products; increases in these taxes that exceed increases in consumer prices and incomes to reduce the affordability of tobacco products; minimize incentives for tobacco users to switch to cheaper brands or products in response to tax increases; and reducing opportunities for tax avoidance and evasion. This type of tax regime will have the greatest impact on public health while generating a reliable stream of tax revenue. Such a system will be most effective when combined with a strong tax administration, including the use of a state-of-the-art monitoring, tracking and tracing system that includes high-tech tax stamps and licenses for all those involved in the manufacture and distribution of tobacco products, coupled with proper enforcement and prompt and severe penalties for violations. This document summarizes the evidence on the health and economic impact of health taxes (levied on products that have a negative impact on public health). Results from studies based on adult smoking survey data show that taxes and prices affect smoking prevalence and the amount of tobacco consumed by users. The decline in smoking prevalence reflects changes in per capita sales. Between 1979 and 1991, the prevalence of regular smoking among Canadians over the age of 14 fell from 38% to 26%.33 Research evidence on the relationship between cigarette prices and cigarette consumption supports the conclusion that significant increases in excise taxes on cigarettes will reduce smoking.52 Higher prices for tobacco products would encourage people to quit or Smoking without smoking. and discourage children and adolescents from starting to smoke.
Despite the fact that few studies have examined the link between cigarette prices and smoking among adolescents, most health economists conclude that price responsiveness among adolescents is likely to be at least as high, if not higher, than among adults.53 Therefore, it is reasonable to assume that the increase in tobacco taxes in the United States at the level of , what is common in regions such as Canada, Scandinavia and the United Kingdom, could significantly reduce tobacco use and related diseases in future generations. For example, it has been estimated that if Congress increased the federal cigarette tax by $2 per pack and maintained the tax in real terms, tobacco consumption would decrease by 23% (about 7 million fewer smokers).54 This paper addresses key issues related to the effectiveness of tobacco taxation as a tobacco control strategy. We`ll start with an overview of the different types of tobacco taxes and tax structures used by governments around the world, and discuss how these taxes affect the prices of tobacco products. It is followed by a brief review of research findings on the impact of tobacco taxes and prices on tobacco use, as well as the additional effects on tobacco reduction resulting from the use of tobacco tax revenues for other tobacco control efforts. We then briefly discuss the evidence for the variety of arguments used against tobacco taxation. It is true, however, that low-income people who continue to use tobacco after a tax increase will be affected. To the extent that new revenues from tobacco tax increases are used for anti-poor programmes, including tobacco control programmes, this concern is at least partially addressed. For example, several governments have earmarked tobacco tax revenues for programs that offer smoking cessation products and counselling to low-income smokers interested in quitting, while many focus on reducing income and other inequalities in tobacco use and its consequences. Still others have provided new tobacco tax revenues for public health insurance programs for low-income populations and/or other poverty reduction efforts.2 This often results in a large increase in profits for the tax administration – or for organized crime groups smuggling untaxed goods – but a relatively small effect on the actual reduction in tobacco use. In some cases, it may even prompt governments to at least tolerate – if not encourage – smoking, as it becomes a big cash cow for general expenditure budgets. The argument that increasing tobacco taxes will hurt the poor is often used against proposed tax increases and is based on evidence that existing tobacco taxes are regressive (i.e., low-income people bear a disproportionate share of the tobacco tax burden).