Policy Briefs

EVIDENCE-BASED TOBACCO TAXATION POLICY IN SERBIA - SOME RECOMMENDATIONS FOR POLICY MAKERS

Evidence-based tobacco taxation policy in Serbia – some recommendations for policy makers

Tobacco consumption and prevalence in Serbia are decreasing, but still are significantly higher than the EU-28 average

According to the latest official data from 2017, 34.2 percent of Serbian adults smoke. The share of daily smokers is 29.2 percent, significantly higher if compared to the EU-28 average of 18.4 percent. Official price and prevalence data for the last 15 years show a link between the rising prices of cigarettes and the decrease of smoking prevalence (Figure 1). During the period of the highest rise in prices (2011-2014), prevalence rates sharply declined. However, ever since the Government abandoned a strict tobacco control policy and adopted an excise calendar of gradual and even declining marginal increases of the specific excise, smoking prevalence has remained relatively stable.

 

THE RESPONSIVENESS OF SMOKING PREVALENCE AND CIGARETTE CONSUMPTION TO CHANGES IN PRICE AND INCOME IN NORTH MACEDONIA

The responsiveness of smoking prevalence and cigarette consumption to changes in price and income in North Macedonia

The small country of North Macedonia is among the leaders in the world with respect to tobacco consumption. Smoking prevalence is approximately 40 percent; there is a high intensity of smoking at 28.2 packs per month per household, which places the country well above the EU average in terms of tobacco consumption. For comparison, smoking prevalence in 2014 ranged from 8.7 percent in Sweden to 27 percent in Greece and Bulgaria, while only 6 percent of the EU population over the age of 15 consumed at least 20 cigarettes per day, and around 13 percent consumed less than 20. Projections from the World Health Organization (WHO) suggest that 139,000 tobacco-related deaths will occur in the next 40 years if the current levels of tobacco consumption continue. The WHO Framework Convention on Tobacco Control recommend significant increases in tobacco taxes and prices as the most effective way to reduce tobacco use and its devastating health consequences. Price and tax increases on tobacco can be effective in improving people’s health, reducing healthcare costs, and at the same time, increasing government revenue.

 

THE EFFECTIVENESS OF TAX POLICY CHANGES IN MONTENEGRO – SMOKING BEHAVIOR BY SOCIOECONOMIC STATUS

The effectiveness of tax policy changes in Montenegro – smoking behavior by socioeconomic status

This ISEA research focuses on the effectiveness of tax policy changes in Montenegro for the reduction of cigarette consumption and prevalence, especially in the context of socioeconomic status. Global evidence demonstrates that tobacco taxation policy is one of the most effective tools to reduce smoking prevalence, specifically among youth and low-income group.

Data from Montenegrin Household Budget Survey shows a decreasing trend in the consumption of cigarettes (2006-2017) across all income groups, which is a result of price increases. Even if poorer households spend less on cigarettes, they allocate a larger share of their budget on tobacco compared to wealthier groups. On the other hand, as expected, the high-income group has the highest total expenditure on cigarettes.

HIGHER TOBACCO TAXES FOR BETTER HEALTH AND REVENUE OUTCOMES IN KOSOVO

Higher tobacco taxes for better health and revenue outcomes in Kosovo

Increasing tobacco excise and prices remains the single most effective policy in reducing tobacco demand. The specific excise rate for year 2019 of 47 EUR per conventional unit is half of the European Union directive minimum rate for tobacco excise duty of 90 EUR per unit.  Until now, legislative policies and initiatives in Kosovo have not resulted in changes in demand for cigarettes. Results show that increasing the price per pack of cigarettes has a direct impact on decreasing the demand for consumption of cigarettes and, as a result, increasing government revenues. Thus, the government of Kosovo could contribute to improved health and wellbeing of its citizens by increasing the specific excise tax on cigarettes for the year 2020 from EUR 47 to EUR 69.5 per 1000 sticks, and at the same time, generate significant and much needed additional budget revenues in a progressive manner.

THE IMPACT OF TOBACCO TAX POLICIES FOR DIFFERENT SOCIOECONOMIC GROUPS IN BOSNIA AND HERZEGOVINA

The impact of tobacco tax policies for different socioeconomic groups in Bosnia and Herzegovina

Even though there has been a steady decline in smoking prevalence in Bosnia and Herzegovina (B&H), smoking remains a significant health risk in the country. Current tobacco tax policy in B&H assumes a gradual annual increase of the specific excise tax on cigarettes, but gradual increases have not been sufficient to significantly reduce consumption. There is, therefore, space for improvement by increasing the specific excise tax on tobacco.  

HEALTHIER AND WEALTHIER - WHY TAXING TOBACCO IS IMPORTANT NOT ONLY FOR HEALTH BUT ALSO FOR THE ECONOMY

Why taxing tobacco is important not only for health but also for the economy

Albania has one of the highest smoking prevalence rates in the Western Balkans and Europe. In Albania, every second male smokes, while female rates of smoking prevalence are higher than most developed countries (according to Human Development Index (HDI) ranking). In addition, tobacco consumption is a major problem among youth.

Tax policies on tobacco products are considered most effective for reducing tobacco consumption, besides contributing to government revenue. Efficient fiscal policies aiming to reduce smoking prevalence need to be based on solid evidence. For this purpose, a study has been carried out by Development Solutions Associates (DSA), which confirms that an increase in excise taxes on tobacco products could reduce tobacco consumption and increase government revenue considerably.

 

IMPROVING TOBACCO TAXATION POLICIES IN SOUTHEASTERN EUROPE

Regional Policy Brief- Southeastern Europe

All seven Southeastern European (SEE) countries (Albania, Bosnia and Herzegovina (B&H), Croatia, Kosovo, Macedonia, Montenegro, and Serbia) have ratified the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC) recognizing taxes as an effective tool for reducing the use of tobacco products. Although some positive effects of excise tax increases on tobacco consumption can be seen over the last few years, it seems that other determinants of demand (such as industry marketing) have offset its real impact on tobacco prevalence.

Research from the seven SEE countries suggests there is a significant potential for accelerating the increase of excise duties to reduce the negative effects of tobacco consumption on public health and the economy.

Current prevalence rates in SEE are still high, with rates in Montenegro being the highest (45.9%) and Albania being the lowest (28.7%). It is also higher in comparison to the EU member countries, where the European Health Survey reports an average rate of daily smokers of 18.4%. Current tobacco taxation policies in SEE rely on gradual tax increases aimed at ensuring stable and predictable fiscal revenues.

Despite high prevalence, even among youth, very little effort has been made in the region as a whole to highlight the negative health and economic impacts of tobacco consumption. The effectiveness of tobacco control strategies, including tobacco taxation, is—to a large extent—missing from the policy and research agendas of local stakeholders.

IMPROVING TOBACCO TAX POLICIES IN THE REPUBLIC OF SERBIA

Improving Tobacco Tax Policies in the Republic of Serbia

By ratifying the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC) in 2005, the Republic of Serbia has recognized the role of tobacco taxes in reducing the health, social, environmental and economic consequences of tobacco consumption.1 Research has shown that raising tobacco prices through increased tobacco taxes can reduce tobacco consumption.

The research fndings indicate that the price elasticity of demand for tobacco products in low and middle-income countries ranges between -0.2 and -0.8.2 In other words, a 10% increase in tobacco prices in low and middle-income countries would decrease tobacco consumption between 2-8%. Similarly, a 50% increase in tobacco prices would result in reducing tobacco consumption between 10% and 40%. tobacco resulting from higher taxes would have a positive impact both on the health of the nation and the health of public fnances.

Research conducted by the Institute of Economic Sciences (IES) in Serbia showed that a 10% increase in tobacco prices would reduce demand between 4.5 and 7.6% and also raise revenues. This is based on a price elasticity of demand of between -0.45 and -0.76, depending on the research methodology.

ACCELERATING PROGRESS ON EFFECTIVE TOBACCO TAX POLICIES IN MONTENEGRO

Accelerating Progress on Effective Tobacco Tax Policies in Montenegro

The prevalence of smoking in Montenegro is high, having risen especially during 2012-2017, causing numerous negative economic and health consequences that require an immediate policy response. The number of smokers in Montenegro decreased during 2000- 2012, but has since risen by 5 percentage points from 2012-2017. During this period, smoking prevalence among women has increased at rates faster than men. Total smoking prevalence among youth is also high, estimated to be at 18.7%, with a higher share of females than males. World Health Organization (WHO) research shows that without any changes in regulations, Montenegro’s adult smoking rates would rise to 52% by 2035, with the majority being adult women. This would result in a higher prevalence of smoking-related diseases and consequently increase direct health-care costs.

Increasing tobacco taxes is recommended as a part of comprehensive tobacco control policies that include clean indoor air laws, prevention of illicit trade in tobacco, bans on tobacco advertising and marketing, policies that empower graphic health warnings, public education campaigns, and support for cessation.  

IMPROVING TOBACCO TAX POLICY IN THE REPUBLIC OF MACEDONIA

Improving Tobacco Tax Policy in the Republic of Macedonia

Macedonia ranks among the top ten countries worldwide based on smoking prevalence and average number of cigarettes smoked per smoker. Data from the Ministry of Finance shows an increasing trend in excise revenues during 2000-2017. Revenues have more than doubled since 2010. With an estimated share of 3%, Macedonia is positioned among the eight major tobacco producing countries of the world. However, even with subsidies from the Government, tobacco production has declined over the past years, which is in line with international trends. The land under tobacco currently occupies 3.4% of total arable land and over 70% of the total area planted with indus¬trial crops2. The Republic of Macedonia is one of the 168 countries in the world that have ratifed the World Health Organization Framework Convention on Tobacco Control (WHO FCTC).

This research by Analytica-one of the frst such studies in Macedonia—studied the price elasticity and other key determinants of demand for tobacco products. The study evaluated to what extent demand for tobacco, specifcally cigarettes, could be controlled by price and other policy measures. The fndings of this research study show that increasing the existing tobacco tax by 50%could reduce consumption of tobacco products by 19.2%, while increasing tobacco tax revenues by around EUR 100 million5.  

ACCELERATING PROGRESS ON EFFECTIVE TOBACCO TAX POLICIES IN KOSOVO

Accelerating Progress on Effective Tobacco Tax Policies in Kosovo

Kosovo is a country with a high smoking prevalence. The Government of Kosovo has adopted tobacco control-related laws in line with the World Health Organization Framework Convention on Tobacco Control (WHO FCTC) and the EU regulations and directives. However, there is a lack of implementation of the laws and monitoring mechanisms, and this is a systemic problem that needs to be addressed. The primary institutions in charge of tobacco-related policy making and implementation in Kosovo are the Ministry of Health and the Ministry of Finance. The Ministry of Finance drafts policies and other regulations related to tobacco taxations, while the Ministry of Health focuses on policies with the aim of the public health protection from tobacco use.

The research conducted by the Center for Political Courage (CPC) confrms that revising the current taxation policy could bring numerous positive effects resulting from a reduction in tobacco consumption. CPC estimates that a 10% increase in the cigarette retail price – from an increased excise tax– shall be followed by a 6.9% decrease in consumption in the long run and 3.3% in the short run, while increasing excise revenues between 6.1% and 6.7%.  

EXCISES ON TOBACCO PRODUCTS - EFFECTIVE INSTRUMENT FOR REDUCING PREVALENCE OF SMOKING

Excises on Tobacco Products – Effective Instrument for Reducing Prevalence of Smoking

Smoking prevalence in Croatia remains among the highest in Europe. Comprehensive tobacco control policies that include higher tobacco taxes and prices as well as clean indoor air laws and bans on tobacco marketing are effective in both, preventing youth from starting to smoke and encouraging smokers to quit. Higher tobacco taxes through higher tobacco prices have been shown through many studies to reduce tobacco consumption. Therefore, tax policy that signifcantly increases the tax burden on tobacco products is the most effective tool for reducing smoking rates. In Croatia, tobacco excise duties are 60% of the retail price, of which 34% is ad valorem excise, while the share of specifc excise is 26%.

These fndings provide opportunities to improve tax policy, primarily by further increasing excise duties on tobacco products, which should ultimately result in increased tax revenues, healthcare savings, and improving the health of the population.  

IMPROVING TOBACCO TAX POLICIES IN BOSNIA AND HERZEGOVINA

Improving Tobacco Tax Policies in Bosnia and Herzegovina

Tax policy is one of the most effective means of reducing the consumption of tobacco products, which has been shown in multiple studies carried out by leading researchers in the feld of health economics (Acharya et al. 2016, Chaloupka et al. 2010, John 2008, Bader et al. 2011, Ross et al. 2003, WHO, 2016, etc.).

In countries with medium and low income levels, the price elasticity of demand for tobacco products ranges between -0.2 and -0.8 (Acharya et al. 2016). In other words, a 10% increase in the price of tobacco products can reduce consumption between 2%-8%, resulting in positive effects on the health of the population, and also creating an increase in revenue for the government.

Based on the current data on the number of smokers in Bosnia and Herzegovina, the mortality attributable to tobacco products is projected to be 600,000 (WHO, 2016). In line with the suggestions of the WHO report on tobacco control1 , it is possible to improve the existing policy in such a way that both the number of smokers and the consumption of tobacco products are reduced.

IMPROVING TOBACCO TAX POLICIES IN THE REPUBLIC OF ALBANIA

Improving Tobacco Tax Policies in the Republic of Albania

Tobacco consumption in Albania remains one of the highest in Western Balkans (WB) based on 2015 data from the World Health Organization. According to the Tobacco Atlas, more than 4,100 Albanians die as a result of tobacco-related diseases every year. Additionally, more than 1,000 children (10-14 years old) and 398,000 youth and adults (15+ years old) continue to use tobacco each day, costing an estimated amount of 270 million Euros to the Albanian economy every year.

Tax policies on tobacco products are considered to be the most efcient not only for reducing tobacco consumption, but also for their positive impact on budget revenues. Also, tobacco taxes are relatively easy to collect with low administration costs due to a small number of producers and large sales volumes. The positive impact of taxes on reducing tobacco consumption has been confrmed in several empirical studies from developed and developing countries. A study carried out by Development Solutions Associates (DSA)16 shows that an increase in excise taxes on tobacco products could reduce tobacco consumption and increase government revenues.