Taxation of tobacco, alcohol, and sugar-sweetened beverages: reviewing the evidence and dispelling the myths

Abstract

The article reviews the large body of evidence on how taxation affects the consumption of tobacco, alcohol, and sugar-sweetened beverages (SSB). There is abundant evidence that demand for tobacco, alcohol, and SSB is price-responsive and that tax changes are quickly passed on to consumers. This suggests that taxes can be highly effective in changing consumption and reducing the burden of diseases associated with consuming these products. Tobacco, alcohol, and SSB industries oppose taxation on similar grounds, mostly on the regressivity of taxes since regressive taxes take a larger percentage of income from low income earners than from middle and high income earners; but also on the effects taxes might have on employment and economic activity; and, in the case of tobacco, the effects taxation has on illicit trade.Contrary to industry arguments, evidence shows that taxation may have short-term negative financial consequences for low-income households. However, medium and long-term financial benefits from reduced healthcare costs, better health, and welfare largely compensate for such consequences. Moreover, taxation does not negatively affect aggregate economic activity or employment, as consumers switch demand to other products that generate employment and may compensate for any employment loss in taxed sectors. Evidence also shows the revenues generated are generally spent on labour-intensive services. In the case of illicit trade in tobacco, evidence shows that illicit trade has not increased globally (rather the opposite) despite increases in tobacco taxes. Profit-maximising smugglers increase illicit cigarette prices along with the increases in licit cigarette prices. This implies that even when increased taxes divert some demand to the illicit market, they push prices up in the illicit market, discouraging consumption.

Interpreting results, impacts and implications from WHO FCTC tobacco control investment cases in 21 low-income and middle-income countries

“… 40 This is particularly relevant when governments use proceeds from tobacco tax revenues to fund effective tobacco control programmes that directly provide evidence-based services and programmes that help those with lower-income successfully quit using tobacco. 41 42 …”

Patterns and determinants of tobacco purchase behaviors among male cigarette smokers in Vietnam: A latent class analysis

“…In this case, the increase in taxation could help to reduce differences in smoking behaviors across different socioeconomic groups since the poorer smokers, who allocate a larger percentage of their income to cigarettes, would smoke less with increased cigarette prices than wealthier smokers, who smoke international brands with more increase in prices. Thus, a tobacco tax increase could not be a regressive policy, as usually mentioned by the tobacco industry 16 , 17 .…”