Revamping tobacco taxation strategies for high-burden Asian countries: ADB

Tobacco use remains a formidable global health challenge, and the Asian Development Bank (ADB) has undertaken a comprehensive study to reassess tobacco taxation strategies in high-burden Asian countries.

According to ADB, the study aims to evaluate progress, analyse the impact of previous tax recommendations, and propose new measures to further reduce smoking prevalence while supporting revenue mobilization.

Globally, tobacco-related diseases contribute to 12 per cent of adult deaths, resulting in over 8.2 million fatalities annually. The adverse health effects are particularly pronounced in low- and middle-income countries (LMICs), where the majority of tobacco users reside.

Five high-burden LMICs--India, Philippines, People's Republic of China (PRC), Thailand, and Vietnam--account for a significant portion of the world's smokers, highlighting the urgent need for effective tobacco control measures.

A study conducted by the ADB in 2012 proposed a set of tobacco excise tax recommendations for the five countries.
The study estimated that a 50 per cent increase in cigarette prices through tax hikes could reduce the number of smokers by 67 million and generate an additional USD 25 billion in annual tax revenue.

However, a decade later, the ADB decided to revisit the study to assess progress and identify measures to further reduce smoking prevalence. The recent ADB governance brief, Excise Tax Policy and Cigarette Use in High-Burden Asian Countries reveals a significant lack of progress in tobacco taxation over the past decade in India, PRC, Thailand, and Vietnam.

Only the Philippines successfully implemented evidence-based tobacco tax policies, resulting in a 19 per cent reduction in smoking prevalence and a 138 per cent increase in real excise tax revenue.

While India initially experienced a decline in cigarette sales and a 35 per cent growth in real excise tax revenue, the introduction of the goods and services tax in 2017 increased cigarette affordability, leading to higher consumption.

Revisiting the tax structure, reducing reliance on ad valorem taxes, and increasing the cigarette tax rate are recommended. Despite some tax increases, rising incomes offset the impact on cigarette affordability, resulting in persistently high smoking rates. The PRC urgently requires comprehensive tax reforms to effectively curb tobacco use.

Progress in reducing smoking prevalence is hindered by a monopolistic market, industry tax avoidance, and a tiered tax structure. Adopting more aggressive tax policies, eliminating the tiered structure, and addressing tax avoidance is crucial. Minimal progress in tobacco tax policies over the last decade has led to stagnant smoking rates and an 8 per cent decline in real excise tax revenues.

Fundamental reforms, including a shift from ad valorem to a specific or mixed tax regime, are needed. Higher tobacco taxes are identified as among the most powerful and cost-efficient tools to reduce tobacco consumption. The study presents tailor-made, country-specific analyses, indicating necessary tax reforms to achieve a 10 per cent or a 5 per cent decline in smoking prevalence in each country.

The population of smokers was reduced by 38.7 million, 11.6 million premature deaths were prevented, USD 67.5 billion in additional tax revenue (a 48 per cent increase compared to 2020),
5 per cent Reduction Scenario- 18.3 million fewer smokers, 5.5 million premature deaths averted, 21 per cent increase in tax revenue. The urgency to address tobacco use as a public health hazard and an economic burden cannot be overstated.

While there is a concerning lack of progress in tobacco taxation in several Asian countries, the study emphasizes the vast potential for saving lives and raising domestic revenues through feasible tax reforms. The implementation of evidence-based tobacco tax policies can play a pivotal role in post-pandemic national recovery, creating a healthier and more prosperous future for these high-burden Asian nations.