Abstract

Introduction:

The importance of tobacco tax structure in determining the relative prices of different tobacco products and brands has become increasingly recognized. The structuring of tobacco tax across products and brands within a country can impact the variability of prices within a country, shaping consumption and influencing tobacco users’ incentives to switch down to cheaper alternatives in response to tax and price increases.

Methods:

Brand-specific data on the average prices paid for the top 5 cigarette brands in 13 countries were obtained from the Global Adult Tobacco Survey, and for the United States, data were obtained from the National Adult Tobacco Survey. The variability of cigarette prices paid across brands was analyzed in the context of each country’s tobacco tax structure.

Results:

Countries with simpler cigarette tax structures, particularly those that emphasize specific taxes and do not involve tier-based taxes, exhibit less variability in the prices smokers pay for cigarettes across brands.

Conclusions:

Increases in cigarette taxes in countries with simpler tax structures will be more effective in reducing cigarette smoking and its health and economic consequences than comparable tax increases in countries where tax structures are more complicated and there are greater opportunities for switching to cheaper brands in order to avoid a tax increase.

INTRODUCTION

Extensive evidence demonstrates the effectiveness of increases in cigarette and other tobacco product excise taxes in reducing tobacco use and its consequences. In its recent comprehensive review of the global evidence, the International Agency for Research on Cancer (IARC, 2011) concluded that there was sufficient evidence that higher tobacco product taxes and prices result in a decline in overall tobacco use; reduce the prevalence of adult tobacco use; induce current tobacco users to quit; lower the consumption of tobacco products among continuing users; reduce the prevalence of tobacco use among young people; reduce the initiation and uptake of tobacco use among young people, with a greater impact on the transition to regular use; and lead to larger reductions in tobacco use among young people than among adults. However, IARC also concluded that the evidence was more mixed concerning differences in the impact of tax and price increases on tobacco use by income levels, both across countries and within countries (particularly low- and middle-income countries), attributing this mixed evidence at least in part to the availability of a variety of low-priced brands and products in some countries, which allow tobacco users to switch down to cheaper alternatives in response to tax and price increases.

In recent years, the importance of tobacco tax structure in determining the relative prices of different tobacco products and brands has become increasingly recognized. Governments in different countries apply a wide variety of taxes on tobacco products, from import duties on tobacco leaf and manufactured tobacco products to the value added or sales taxes that apply to these and many other goods and services (World Health Organization [WHO], 2010). However, tobacco product excise taxes (or other taxes uniquely levied on tobacco products) are particularly important given that these are the taxes that directly influence the relative prices of tobacco products and, as a result, are the taxes that will have the greatest impact on tobacco use.

Tobacco product excise taxes take two forms—specific (per unit) taxes or ad valorem (value-based) taxes. Globally, cigarette excise tax structures vary considerably, with some governments applying relatively simple tax structures that impose the same specific or ad valorem rate on all cigarettes, while others adopt more complex multitiered structures that impose different rates on cigarettes with different characteristics (e.g., price, length, presence of filter, and/or other factors), and still others use a combination of specific and ad valorem taxes (WHO, 2010). In many countries, other tobacco products are often taxed at quite different rates than are cigarettes (e.g., very low taxes on bidis in India, relative to the taxes on manufactured cigarettes, and the differential taxation of manufactured and fine cut tobacco in many European Union [EU] countries).

These differences in tobacco excise tax structure reflect governments’ revenue and health objectives, as well as their responses to the competing and varied interests of those potentially affected by tobacco taxes (WHO, 2010). Historically, the primary objective of tobacco taxes in most, if not all, countries has been revenue generation. However, as evidence has grown about the health and economic consequences of tobacco use and the influence of price on the demand for tobacco products, a growing number of governments have used higher tobacco taxes to discourage tobacco use. The resulting tobacco tax structures reflect government’s interests in raising revenues, reducing the health and economic costs caused by tobacco use, and/or accounting for the externalities caused by tobacco use. In at least some countries, they also result from interests in protecting domestic tobacco growers and/or local tobacco companies, while in others reflect governments’ desire to ensure that at least some products are available at low price to poor consumers (WHO, 2010).

Economic theory indicates that the choice of tobacco excise tax structure will have a significant impact on a government’s ability to achieve its objectives (WHO, 2010). Uniform specific taxes on cigarettes are relatively easy to administer as the same tax applies to all cigarettes. In contrast, price-based multitiered specific taxes and ad valorem taxes are more difficult administratively, requiring some determination of value, which can be subject to manipulation and, as a result, strong tax administration in order to deter tax avoidance. The value of specific taxes will fall over time unless tax rates are regularly adjusted for inflation. The revenues generated by ad valorem taxes are more sensitive to industry pricing decisions than revenues generated by specific taxes, with ad valorem taxes rising as prices rise but falling in response to industry price cuts. As income grows, both will need to be increased to reduce the affordability of tobacco products. The multiplier effect of an ad valorem tax creates disincentives for the production of higher “quality” products when compared with a specific tax, leading to greater availability of relatively low-priced, low “quality” products. Tax structures that use a mix of specific and ad valorem taxes incorporate the strengths and weaknesses of both types of excises while adding to the administrative complexity.

Though economic theory provides strong predictions about the effects of alternative tax structures, empirical evidence on the impact of structure on outcomes such as cigarette and other tobacco product prices, tobacco tax revenues, and tobacco use is almost nonexistent. One recent paper took advantage of the variability in cigarette tax structures in European countries that results from the EU’s directive on tobacco taxes that sets a minimum for cigarette taxes (both in absolute terms and as a percentage of price for the most popular brand category), requires a mix of specific and ad valorem excises, and provides a range for the share of the total tax that must be accounted for by the specific tax, to explore these issues (Chaloupka, Peck, Tauras, Xu, & Yurekli, 2010). These researchers found that greater reliance on specific excise taxes narrowed the gap in prices between high- and low-priced cigarette brands, reducing opportunities for smokers to substitute to cheaper brands in response to increases in taxes and prices. Similarly, they found that average cigarette prices were higher in countries where the specific tax accounted for a greater share of the total excise on cigarettes. They also found that cigarette consumption was lower in countries that rely more on specific excises (as expected, given the findings for cigarette prices) and that, for the same total excise tax, greater reliance on the specific tax was associated with higher cigarette excise tax revenues and less variability in these revenues over time.

Two recent papers focused on the impact of recent changes in tobacco taxes in Spain, which included imposition of and increases in a minimum specific cigarette tax and, eventually, a minimum specific tax on fine cut tobacco, along with ad valorem taxes on pipe tobacco and cigars (López-Nicolás, Badillo-Amador, & Cobacho, 2013a; López-Nicolás, Cobacho, & Fernández, 2013b). One found that the increase in taxes, particularly on lower priced cigarettes, was effective in reducing sales of manufactured cigarettes, but the increased tax and price differential between manufactured cigarettes and fine cut tobacco led to increased market share for fine cut tobacco (López-Nicolás et al., 2013b). The other found that the tax increases had little impact on smoking prevalence in Spain, likely due to the availability of fine cut tobacco as a substitute for manufactured cigarettes (López-Nicolás et al., 2013a).

This paper adds to the very limited empirical evidence on the impact of tobacco excise tax structure by looking at the associations between cigarette tax structure and cigarette prices, using data on self-reported cigarette prices taken from the Global Adult Tobacco Survey (GATS) conducted by 13 low- and middle-income countries between 2008 and 2011 and from the National Adult Tobacco Survey (NATS) conducted in the United States in 2009–2010. The data from these surveys show that there is greater price variability in countries that use more complicated cigarette tax structures, while the least variability exists in countries with a uniform specific tax or a mixed system with a minimum tax that effectively works like a uniform specific tax. Since wider price variability incentivizes consumption, these findings provide additional support for the use of a uniform specific tax on cigarettes as the tax structure that is likely to have the greatest public health impact. In addition to sending the clear message that all cigarettes are equally harmful, a uniform specific tax, by narrowing price gaps, is expected to reduce opportunities for smokers to switch down to cheaper brands as cigarette taxes and prices rise. This evidence is particularly timely as Parties are currently in the process of developing tobacco tax guidelines for Article 6 of the WHO’s Framework Convention on Tobacco Control (WHO, 2003).

DATA

Brand-specific average cigarette prices for 13 countries are obtained from the GATS (Centers for Disease Control and Prevention, 2012) and from the U.S. NATS (Engstrom & Mariolis, 2010). GATS is a nationally representative household survey of noninstitutionalized men and women aged 15 years and older. It has been conducted in 15 countries in various years from 2008 to 2011 and is in progress or planned for several others. GATS assesses individual tobacco use behaviors, attitudes, and the tobacco-related environment, and includes module that captures individual spending on tobacco products. GATS data from Bangladesh, China, Egypt, India, Mexico, the Philippines, Poland, Romania, the Russian Federation, Thailand, Ukraine, Uruguay, and Vietnam are used in this analysis.

Responses from this module were used to calculate the price each individual paid and the brand purchased at their most recent purchase, using the questions:

  • 1. “The last time you bought cigarettes for yourself, how many cigarettes did you buy?” to obtain the unit of purchase (individual cigarettes, packs, or cartons) and the number of cigarettes in each unit.

  • 2. “How much did you pay for this purchase?” to obtain the overall purchase amount in local currency.

  • 3. “What brand did you buy the last time you purchased cigarettes for yourself?” to obtain brand.

For each smoker, the price per stick was calculated by dividing the reported purchase cost by the number of cigarettes purchased. This was then multiplied by 20 to calculate the price per 20 cigarettes. In each country, the average of this price was computed for each brand family smokers reported purchasing. Comparable data on cigarette purchases and price paid were obtained for the United States from the 2009–2010 NATS, a nationally representative, stratified landline and cell phone-based survey of tobacco use among the adult (aged 18 years and older) noninstitutionalized population (Engstrom & Mariolis, 2010).

Information on the cigarette excise tax structure in each country was obtained from a variety of sources, including the tobacco economics reports produced by the Bloomberg Global Initiative to Reduce Tobacco Use (www.tobaccofreeunion.org/content/en/217), Euromonitor International’s country-specific reports (www.euromonitor.com), the Tobacco Atlas (www.tobaccoatlas.org), and the WHO, Tobacco Free Initiative’s tobacco taxation data from its periodic reports on the global tobacco epidemic (www.who.int/tobacco). The tax structures at the time of the surveys in the countries analyzed here include: simple uniform structures that apply the same specific or ad valorem tax to all cigarette brands and more complex systems that apply a combination of specific and ad valorem excises or tiered excises. In addition to the excise taxes, many of these countries levy value added or other taxes on cigarettes (e.g., sales taxes applied by state/local governments in the United States). With respect to excises, the following systems are applied:

  • 1. Uniform specific tax: the United States was the only country that applied a uniform specific excise tax to all cigarette brands, at a rate of $1.0067 per pack applied at the national level. In addition to the national-level tax, all state and many local governments levy uniform specific excise taxes on cigarettes. The average state and federal excise taxes amounted to about 44% of average cigarette prices at the time of the survey (Orzechowski and Walker, 2012).

  • 2. Uniform ad valorem tax: at the time of the surveys, Mexico, Thailand, Uruguay, and Vietnam applied uniform ad valorem excise taxes. In Mexico, the tax rate was 160% of wholesale price, or roughly 48% of retail price (Waters, Sáenz de Miera, Ross, & Shigematsu, 2010). In Thailand, the rate was 85% of ex-factory price, which amounted to about 57%–62% of retail prices for popular brands (Eriksen, Mackay, & Ross, 2012; WHO, 2009). In Uruguay, the tax was 70% of the “reference” price, amounting to roughly 48%–54% of retail cigarette prices (Eriksen et al., 2012; WHO, 2009). Finally, in Vietnam, the tax was 65% of the ex-factory price, amounting to about 36% of retail prices (Guindon et al., 2010; WHO, 2009).

  • 3. Combination of specific and ad valorem taxes: Poland and Romania, as EU member states, applied a combination of uniform specific and uniform ad valorem excise taxes, according to the EU cigarette tax directive. In Poland, the specific component of the tax was 2.77 zlotys per pack, while the ad varolem rate was 31.41% of retail price; in Romania, these were 4.372 leu per pack and 21% of retail price. In addition, a minimum tax is applied to cigarettes in all EU countries when the combination of the specific and ad valorem taxes do not reach the minimum specified level. In Poland, this was a minimum of 4.576 zlotys per pack; in Romania, the minimum was 6.81 leu per pack. At the time of the surveys, taxes accounted for about 65% of retail price in Poland in 2009 (Ciecierski, Cherukupalli, & Weresa, 2011) and 58%–62% of retail price in Romania (Eriksen et al., 2012; WHO, 2009).

  • 4. Tiered specific taxes: Egypt, India, the Philippines, and Ukraine applied tiered specific excise taxes. In Egypt, an eight-tiered tax system was used, with taxes ranging from 108 piasters per pack for the lowest priced cigarettes (those with net-of-tax prices below 65 piasters per pack) to 352 piasters per pack for the most expensive (those with prices more than 425 piasters per pack) (Hanafy et al., 2010). Additional specific taxes were applied in Egypt, with a 10 piaster per pack tax applied to all cigarettes, with revenues earmarked for student medical insurance, and a 4 piaster per pack “manufacturing and printing” tax on locally produced foreign brands (Hanafy et al., 2010). Under the complicated multitier structure, excise taxes accounted for 38%–55% of prices, depending on the brand, with the tax burden falling for higher priced brands (Hanafy et al., 2010). India’s tiered specific tax structure was more complicated, with different taxes applied based on length and presence/absence of a filter. At the low end, cigarettes less than 60mm in length, with or without a filter, were taxed at 13.38 rupees per pack. At the high end, filtered cigarettes greater than 85mm in length were taxed at 47.26 rupees per pack. On average, cigarette excise taxes accounted for less than one third of retail cigarette prices (John et al., 2010). In the Philippines, a multitiered specific tax structure was employed, with taxes varying based on whether cigarettes were hand or machine packed and, for machine packed, by “net retail price.” In 2009, taxes on machine-packed cigarettes ranged from 2.47 pesos per pack for cigarettes with net retail prices below 1 peso, up to 27.16 pesos per pack for those with net retail prices above 10 pesos per pack (Quimbo et al., 2012). The Philippines system was further complicated by its “price classification freeze,” which used “net retail price” in 1996 to determine which tax was applied to brands that were on the market in 1996, and current “net retail price” to set the tax for brands introduced after 1996. As a result of this complicated tax system, cigarette excise taxes in the Philippines accounted for less than one quarter of retail price, on average (Quimbo et al., 2012). In Ukraine, specific taxes of 0.806 and 1.8 hryvnia per pack were applied to unfiltered and filtered cigarettes, respectively; in addition, an import duty of 0.33 hryvnia per pack was applied to all imported cigarettes (Euromonitor International, 2013).

  • 5. Tiered ad valorem taxes: In Bangladesh, a four-tiered ad valorem excise tax system was used, with taxes based on “maximum retail prices” and ranging from 32% of price for the lowest tier to 57% of price for the highest tier, with rates of 52% and 55% applied to the middle tiers (Barkat et al., 2012). As a result, the excise tax accounted for about half of retail cigarette prices in Bangladesh (Barkat et al., 2012).

  • 6. Tiered, mixed specific and ad valorem taxes: In the remaining two countries, China and the Russian Federation, mixed specific and ad valorem tax structures were used. In China, a small specific tax of 0.06 RMB per pack was applied to all brands. The ad valorem tax rates were 36% and 56% of the “allocation price,” where the allocation price is the price negotiated between the state cigarette monopoly and tax authorities (Gao, Zheng, & Hu, 2012). As a result, the allocation price is not directly related to either the producer price or the retail price. Further complicating the situation in China is that the retail prices are not set by market forces but are instead determined jointly by the cigarette factories, cigarette companies, and tobacco monopoly authority (Gao et al., 2012). In 2010, WHO (2011) estimated that the excise tax was 26% of the retail price for the most population brand of cigarettes in China. The Russian Federation applied a uniform ad valorem rate of 6% of maximum retail price while levying specific rates of 1.44 and 3 rubles per pack on unfiltered and filtered cigarettes, respectively (Euromonitor International, 2013).

RESULTS

As the discussion above illustrates, the 14 countries used in this analysis employ diverse tax structures that are likely to have important implications for the distribution of cigarette prices in each country. This is illustrated by the summary data contained in Table 1. In order to compare the impact of tax structure on cigarette prices across countries, brand-specific prices per pack of 20 cigarettes were constructed from the survey data for brands smoked by at least 0.5% of smokers. Prices were then normalized to the simple mean price of these brands; that is, for each brand, the resulting measure reflects the average price reported by smokers for that brand relative to the average of the brand-specific average prices.

Table 1.

Normalized Cigarette Prices, Descriptive Statistics

 Median SD Skewness Minimum Maximum Max/Min Tax structure Adult smoking prevalence 
Bangladesh 0.66 0.68 1.69 0.28 2.91 10.33 Tiered ad valorem 14.2% (11.2%) 
China 0.81 0.64 1.91 0.37 3.17 8.50 Tiered mixed 27.7% 
Egypt 0.87 0.31 1.25 0.71 1.58 2.22 Tiered specific 16.3% 
India 0.92 0.28 0.70 0.65 1.61 2.47 Tiered specific 5.8% (9.2%) 
Mexico 0.99 0.19 −0.10 0.72 1.27 1.77 Ad valorem 15.6% 
Philippines 0.80 0.51 0.82 0.40 1.99 5.00 Tiered specific 27.9% 
Poland 0.99 0.12 −0.50 0.63 1.23 1.96 Mixed 30.2% 
Romania 1.01 0.12 −0.76 0.68 1.20 1.75 Mixed 26.7% 
Russian Federation 0.89 0.54 0.77 0.32 2.34 7.25 Tiered mixed 38.8% 
Thailand 0.99 0.16 −0.14 0.75 1.24 1.67 Ad valorem 23.5% 
Ukraine 0.94 0.26 1.18 0.67 1.68 2.50 Tiered specific 28.6% 
United States 1.00 0.13 1.05 0.85 1.32 1.56 Specific 19.5% 
Uruguay 1.15 0.30 −0.78 0.49 1.29 2.64 Ad valorem 24.7% 
Vietnam 0.79 0.55 1.80 0.56 2.48 4.40 Ad valorem 19.9% 
 Median SD Skewness Minimum Maximum Max/Min Tax structure Adult smoking prevalence 
Bangladesh 0.66 0.68 1.69 0.28 2.91 10.33 Tiered ad valorem 14.2% (11.2%) 
China 0.81 0.64 1.91 0.37 3.17 8.50 Tiered mixed 27.7% 
Egypt 0.87 0.31 1.25 0.71 1.58 2.22 Tiered specific 16.3% 
India 0.92 0.28 0.70 0.65 1.61 2.47 Tiered specific 5.8% (9.2%) 
Mexico 0.99 0.19 −0.10 0.72 1.27 1.77 Ad valorem 15.6% 
Philippines 0.80 0.51 0.82 0.40 1.99 5.00 Tiered specific 27.9% 
Poland 0.99 0.12 −0.50 0.63 1.23 1.96 Mixed 30.2% 
Romania 1.01 0.12 −0.76 0.68 1.20 1.75 Mixed 26.7% 
Russian Federation 0.89 0.54 0.77 0.32 2.34 7.25 Tiered mixed 38.8% 
Thailand 0.99 0.16 −0.14 0.75 1.24 1.67 Ad valorem 23.5% 
Ukraine 0.94 0.26 1.18 0.67 1.68 2.50 Tiered specific 28.6% 
United States 1.00 0.13 1.05 0.85 1.32 1.56 Specific 19.5% 
Uruguay 1.15 0.30 −0.78 0.49 1.29 2.64 Ad valorem 24.7% 
Vietnam 0.79 0.55 1.80 0.56 2.48 4.40 Ad valorem 19.9% 

Note. GATS = Global Adult Tobacco Survey; NATS = National Adult Tobacco Survey. Brand-level data for all brands with market share of at least 0.5%, normalized based on simple average of brand-specific prices. Prevalence data reflect adult cigarette smoking prevalence from the NATS for the United States and from the GATS for other countries. Prevalence data in parentheses reflect adult bidi smoking prevalence in Bangladesh and India from the GATS.

Sources: Giovino et al. (2012), King, Dube, and Tynan (2012), and GATS country reports.

Table 1 presents the median, SD, skewness, minimum, and maximum values of the resulting price distribution for each country, along with the ratio of the maximum to the minimum and the tax structure in the country. In countries where prices are relatively tightly distributed, the median is expected to be near the mean (one for the normalized prices used in Table 1), and the SD is expected to be low. Similarly, the minimum and maximum prices will not be far from the mean, and the ratio of the maximum to minimum price is expected to be relatively low. For comparison purposes, Table 1 also includes the adult cigarette smoking prevalence rate in each country, as well as the prevalence of bidi smoking in Bangladesh and India.

There is relatively limited variation in prices in 3 of the 14 countries—Poland, Romania, and the United States. This was expected for the United States given that it is the only one of the analyzed countries with a minimum specific tax on cigarettes. However, in both Poland and Romania, taxes on virtually all brands reported in GATS were at the mandatory minimum level, so while both used a mixed system in theory, the minimum tax has the same impact on the distribution of prices as a uniform specific tax, keeping the price distribution relatively tight and minimizing differences in prices across brands.

At the other end of the spectrum, there is considerable variation in cigarette prices in Bangladesh, China, the Russian Federation, and the Philippines. In Bangladesh and China, the price distributions are highly skewed; the highest priced brand is much more expensive than the lowest priced brand (10.3 times in Bangladesh and 8.5 times in China); and the median is well below the mean, with many low-priced brands consumed by smokers in both countries. These price distributions are as expected, given the tiered ad valorem taxes in both countries that set relatively low rates on low-priced brands and higher rates on high-priced brands (in addition to the very small specific tax in China). Similarly, the wide range of prices in the Philippines results from the tiered specific tax system in place in the country, combined with the price classification freeze that sets artificially low taxes on long-standing brands. In the Russian Federation, where there is a differential specific tax based on presence or absence of a filter, along with a uniform ad valorem tax, prices are also quite variable. About one sixth of cigarettes consumed in Russia are unfiltered, a relatively high share compared with most other countries and likely to be at least in part due to the price gaps that result from the differential taxation.

The remaining countries—Egypt, India, Mexico, Thailand, Ukraine, Uruguay, and Vietnam, fall in between the countries at the two ends of the distribution. These countries use ad valorem taxes or tiered specific taxes that are similar in many ways to an ad valorem tax in that the specific tax generally rises with prices. The distributions of prices in these countries are wider than those that use uniform specific taxes (like the United States) or that use mixed systems with a minimum floor (like Poland and Romania), but are not as wide as in countries that use more complicated structures that include tiered ad valorem taxes. Differences in the variability in prices between these countries is likely to reflect the level of the ad valorem tax (or the extent to which the tiered specific taxes increase proportionally to price), with greater variability expected in countries with higher ad valorem tax rates (or tiered specific taxes that increase more than in proportion to price from one tier to the next), and vice versa. For example, in Egypt, while there is an eight-tiered specific tax structure, the taxes do not rise in proportion to price, so that the tax burden is lower on higher priced brands, producing a relatively narrow price distribution compared with some of the countries with uniform ad valorem tax structures. At the same time, factors other than tax structure appear to be important contributors to the cigarette price distribution in these countries. In Vietnam, for example, there is a relatively wide variation in prices and the median price is well below the mean. This may, at least in part, result from the availability of relatively high-priced international cigarette brands that have been smuggled into Vietnam, given that these brands are not produced by the domestic monopoly (Joossens, 2003). The opposite appears to be the case in Uruguay, where there are a number of low-priced brands that add to the variability in prices, at least partially the result of cigarettes being smuggled into Uruguay to evade the relatively high local taxes.

Similar patterns are observed when the analysis is limited to a subset of the most widely consumed brands in each country. Figure 1 presents the normalized price data for the five leading brands in each country. Again, countries with relatively simple tax structures, particularly uniform specific or mixed systems with a minimum floor, have less variation in prices among leading brands, while those with more complicated tiered structures, particularly those that include tiered ad valorem taxes, have much greater variation in prices.

Figure 1.

Normalized cigarette prices, top five brands. (Note: Normalized brand prices are the ratios of the average price reported by smokers for each brand relative to the average of the brand-specific average prices).

Figure 1.

Normalized cigarette prices, top five brands. (Note: Normalized brand prices are the ratios of the average price reported by smokers for each brand relative to the average of the brand-specific average prices).

DISCUSSION

While significant cigarette tax increases are highly effective in reducing smoking and its consequences (IARC, 2011), the widespread availability of lower cost brands can lead some smokers to switch to cheaper brands in order to continue smoking or maintain consumption and may remain affordable for young people who are considering taking up smoking. Opportunities for this type of “switching down” are increased when there is greater variability in the prices of cigarettes available in the market. As the data shown above demonstrate, more complicated cigarette tax structures result in greater variability in cigarette prices.

This analysis is subject to several limitations. First, the prices reported in the GATS and NATS reflect the prices of brands consumed by smokers in the surveys and may not capture the full range of prices for cigarettes available in the market. At the same time, they may capture untaxed, smuggled cigarettes, increasing the variability in the reported prices. Second, these are self-reported prices and may be subject to some reporting errors, and may include temporary price promotions, both potentially adding to the variability in reported prices. Third, the descriptive analysis presented above does not quantify the relationship between tax structure and the distribution of cigarette prices, given the challenges associated with constructing measures that fully capture the complexities of the tax structures used in the countries analyzed. Finally, this paper focuses only on cigarette tax structure; differences in tax levels and structures for other tobacco products can lead to substitution between tobacco products in response to cigarette and other tobacco tax increases.

Despite these limitations, the findings in this paper are consistent with expectations and economic theory, with simpler cigarette tax structures, particularly those emphasizing specific taxes, resulting in less variability in the prices smokers pay for cigarettes. This suggests that increases in cigarette taxes in countries with simpler tax structures will be more effective in reducing cigarette smoking and its health and economic consequences than will comparable tax increases in countries where tax structures are more complicated and there are greater opportunities for switching to cheaper brands in order to avoid a tax increase. This lends further support to the WHO’s “best practices” of employing a simple tax structures that emphasize specific taxes and comparable taxes on all tobacco products in order to most effectively use tobacco tax increases to achieve public health goals (WHO, 2010). Indeed, among the countries analyzed in this paper, Egypt and the Philippines have recently taken steps in this direction. Egypt moved from its eight-tiered specific tax structure to a mixed system with a significant specific component (E£ 1.25 per pack) in July 2010. In late 2012, the Philippines adopted legislation that eliminates the artificial price classification freeze, reduces the number of tiers to two in the short run, and eventually achieves a high uniform specific tax in 2017. These are evidence-based fiscal policy options that countries can use to progress toward reducing tobacco use.

FUNDING

Funding for the Global Adult Tobacco Survey (GATS) is provided by the Bloomberg Initiative to Reduce Tobacco Use, a program of Bloomberg Philanthropies. Governments of Brazil and India contributed to GATS implementation in their respective countries. The Bill and Melinda Gates Foundation provided additional funding for GATS implementation in China and for analysis.

DECLARATION OF INTERESTS

The conclusions in this paper are those of the authors and do not necessarily represent the official position of their affiliated organizations..

ACKNOWLEDGMENTS

The authors would like to thank Linda Andes and Erin O’Connor for valuable data assistance.

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