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A Big “YES” To Increase In Tobacco Taxes

TTBy Abdul Adeku

One lasting legacy that former President Goodluck Jonathan bequeathed to the nation was the signing of the National Tobacco Control Bill (NTCB) into law on May 28, 2015. Effectively the NTCB is now the Tobacco Control Act 2015.

Among some commendable provisions such as ban on single stick sale of cigarettes to the underage, the legislation makes a strong tax statement -a provision that opens the doors to increased taxes on tobacco products. Ironically, of all the measures proposed to reduce the number of people who take to the stick, tax increases have always been resisted by tobacco companies. Their argument against pushing up taxes rests on an unsubstantiated claim that increase in taxes will spur smuggling. Can this be true? Can the tobacco industry be trusted?

The answer to the above can be found in internal documents of tobacco corporations which show that they recognize the effectiveness of tax increases in decreasing smoking and therefore sales volumes. For instance, internal documents released as part of settlement of litigation by US attorneys-general against Philip Morris and British American Tobacco (BAT) include the following statements:

Of all the concerns there is one–taxation–that alarms us the most. While marketing restrictions and public and passive smoking do depress volume, in our experience taxation depresses it much more severely. Our concern for taxation is therefore central to our thinking about smoking and health.

Based on the above, it is not surprising that the tobacco industry has in many instances vehemently opposed large increases in taxes. Here in Nigeria, latching on this deception, BAT Nigeria- controller of 80% of the cigarette market in Nigeria and West Africa, has been consistent in arguing that increase in taxes will instigate smuggling.

The World Health Organisation Framework Convention on Tobacco Control (WHO-FCTC) which Nigeria signed in 2004 and ratified in 2005 says tobacco tax increases are the most effective way to reduce tobacco use, and also have the benefit of increasing government revenues.

The body believes raising the price of tobacco products is the most effective means of reducing tobacco consumption and posits that governments can do this directly through raising the excise tax on tobacco and limiting duty-free product sales. Under the WHO FCTC the Parties agree to adopt or maintain measures which may include tax and price policies on tobacco products to help reduce tobacco consumption, and prohibitions or restrictions on tax- and duty-free sales.

It is ironic that despite the aversion of tobacco corporations against taxation for which they say smuggling will rise, they have in fact been fingered as the actual promoters of the smuggling business

In 2009 the United Nations Office on Drug and Crime (UNODC) investigated the West African illicit cigarette market and published a report entitled ‘Transnational Trafficking and the Rule of Law in West Africa: A Threat Assessment’.

The report put the value of cigarettes smuggled into Africa at US$774 million.
Though UNODC report did not name the companies instigating illicit trade in West Africa, BAT, through its own internal documents – British American Tobacco Document Archive (BATDA), made public through two US litigation settlements, provided evidence the company was in cigarette trafficking across the African continent.

The documents suggested smuggling has been an important component of BAT’s business strategy mainly to compete with other transnational tobacco companies and circumvent local import restrictions.

In the case of Nigeria, minimizing taxation was described as a motive BAT allegedly engaged in contraband tobacco trade.

The documents described how BAT worked through distributors whom they contracted into the trade as middlemen purchase cigarettes from BATUKE (BAT UK & Export) and then supply them to smugglers that physically transport contraband across borders.

The aversion of the tobacco industry notwithstanding, several nations have been able to cut down the gale of deaths blamed traceable to tobacco products’ addiction with the introduction of strong tax regimes.

According to the WHO-FCTC, between 1993 and 2009, total taxes on cigarettes (including excise and sales taxes) in South Africa increased from 32% of retail price to 52%. During the same period, cigarette sales declined 30%, government revenue from tobacco taxes increased 800%,and smoking prevalence among adults decreased 25%. The tobacco industry claims higher tobacco taxes led to increases in illicit trade and that it accounts for more than 20% of the cigarette market in South Africa. Based on independent estimates, illicit trade grew in the late 90s and peaked in 2000 between 9.1% and 12.7% of the total market. Estimates for 2009 suggest that illicit trade made up 3.1% to 11.9% of the total market, far below industry claims. However, despite this illicit trade, tobacco use has declined significantly and government revenue from higher excise taxes has rise.
In like manner, between 2006 and 2011 Uruguay implemented several important tobacco control policies in line with the WHO FCTC. These policies included a comprehensive ban on indoor smoking in public places; a ban on tobacco advertising and promotion; and several tobacco tax hikes. A study carried out subsequently indicated that most smokers surveyed reported that the policies made them think about the health risks of smoking more and made them think about quitting.

On February 4, 2009, the Children’s Health Insurance Program Reauthorization Act of 2009 was signed into law by the United States, which raised the federal tax rate for cigarettes on April 1, 2009 from $0.39 per pack to $1.01 per pack. The increase was to help cover the cost of increased coverage under the State Children’s Health Insurance Program (SCHIP).

Taking a cue from these nations, the Nigerian government must be bold enough to call the bluff of tobacco companies by increasing taxes on tobacco products to save Nigerian youths taking to smoking habit. Taxes will make the product unaffordable for the target group of the tobacco companies who are mostly youths.

There are well over 100 studies, including a growing number from low-income and middle-income countries, that clearly demonstrate that tobacco excise taxes are a powerful tool for reducing tobacco use while at the same time providing a reliable source of government revenues. Significant increases in tobacco taxes that increase tobacco product prices encourage current tobacco users to stop using, prevent potential users from taking up tobacco use, and reduce consumption among those that continue to use, with the greatest impact on the young and the poor. Global experiences with tobacco taxation and tax administration have been used by WHO to develop a set of ‘best practices’ for maximizing the effectiveness of tobacco taxation.

Significant increases in tobacco taxes are a highly effective tobacco control strategy and lead to significant improvements in public health. The positive health impact is even greater when some of the revenues generated by tobacco tax increases are used to support tobacco control, health promotion and/or other health-related activities and programmes. In general, oppositional arguments that higher taxes will have harmful economic effects are false or overstated.
The WHO-FCTC also warns that the tobacco industry undermines public health policies like the tax increases through subtle interactions and partnerships with Parties which on the long run targets frustrating regulation of tobacco products
Article 5.3 of the FCTC urges Parties to be wary of interactions and partnerships with tobacco companies as this will open the door for the companies to dictate and attempt weakening legislations.

For the Nigerian government aiming to sure up revenue, a variety of taxes on tobacco and tobacco products are open. Taxes could be applied on tobacco leaf, such as tax on the value of the tobacco crop and duties on imports of tobacco leaf going by the fact that a large percent of the leaves used in producing cigarettes in Nigeria are believed to come from outside Nigeria.

Lessons from countries that have taken these steps point to the fact that tobacco product excise taxes are some of the most effective for achieving the health objective of reducing tobacco consumption since they are applied to tobacco products. If the Nigerian government is truly serious about scaling back the number of deaths attributable to tobacco addiction, then a big “YES” to increasing taxes on tobacco products.

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