Up in smoke: fighting tobacco companies in low-income countries

Higher taxes on cigarettes are good for the treasury and the nations' health

This week’s article is a guest post from Jack Lovell, a Senior Economist at Kivu International.

We all know smoking is bad for our health. But it is also bad economics. Governments in developing countries should stand up to tobacco companies and raise taxes.

High tax on cigarettes is good economic policy. It brings in revenue for government in the short run and saves money on healthcare in the long run. A recent study across Asia and the Pacific showed that every extra dollar spent implementing and enforcing cigarette taxes will return over 20 dollars in the following 15 years.

Low-income countries have a lot to gain. They tend to tax cigarettes less than richer ones. While revenue from cigarettes will never be massive, it can be an important contribution, especially when there are a lot of smokers. For countries where smoking is not yet a problem, proactive steps will save money in the future and prevent smoking taking hold.

      Source: Tobacconomics Scorecard

It is also good politics. People would rather see taxes go up on cigarettes than on their pay or fuel. Public support for higher cigarette taxes is often really high, even among smokers. It turns out people welcome helpto quit.

If it is such a good idea then why don’t more governments do it? Blame tobacco companies.

Tobacco companies influencing policy is not new. They have spent decades lobbying governments in high-income countries. But lower income countries – where 80 per cent of the world’s smokers now live – are their new battleground. They lobby governments hard and publish dodgy research to back up their arguments.

One argument they make is that increasing taxes will discourage smoking and revenue will fall as a result. They are right that this will eventually happen. But most governments are a long way from the tipping point. Take Sri Lanka where cigarette taxes are already among the highest in the world, at 77 per cent of the sales price. The Institute of Policy Studies, a local think tank, showed the government could still raise an extra $72m a year from higher taxes.

Another argument they make is more tax will mean more people buy from the black market. This would mean governments miss out on revenue from legal sales. Tobacco companies in Nepal claim this is already a major problem and that 25 per cent of cigarettes are smuggled into the country. The Nepal Development Research Institute, also a local think tank, looked into this. They found that less than 1 per cent were smuggled in, even after tax rises.

Taking on the tobacco companies can be hard, even when their arguments are so easy to refute. They are known to intimidate people who speak out against them and have deep pockets to fuel a wide range of tactics. But it can be done – governments in Nepal and Sri Lanka have both recently raised taxes significantly. As a result, Sri Lanka’s revenue from cigarette sales increased by 30 per cent last year. For countries where there just isn’t enough money, this extra revenue is crucial.

The case is clear – governments in low-income countries should raise cigarette taxes. It is a win-win solution that will raise revenue and save lives. They are one of the few tax rises that will get public support. The only losers are tobacco companies – governments should make them go up in smoke.