Increasing Revenue & Protecting Public Health During the COVID-19 Pandemic

The World Health Organization (WHO) says that tobacco use claims about eight million lives a year. Credit: WHO

By Hana Ross and Sophapan Ratanachena-McWhortor
CAPETOWN / BANGKOK, Aug 2 2021 – The COVID-19 pandemic has taken its toll on millions of families and damaged the economy of countries around the globe.

Rich countries with higher vaccination rates have opened up their economy ahead of poor countries that are still struggling to fight the pandemic.

Yet, there is a simple recipe to boost the population’s health and increase revenue to pay for vaccines and economic recovery. This simple recipe calls for just one ingredient – the implementation of evidence-based tobacco tax policy.

According to the World Health Organization (WHO), tax and price measures are the most effective means to reduce the demand for tobacco which in in turn will save lives, reduce government expenditures on healthcare, and increase tax revenue.

Smoking is now a recognized risk factor for severe COVID-19 outcomes. Therefore, countries with high smoking prevalence such as Indonesia and Vietnam are quite vulnerable during the pandemic.

Many low- and middle-income countries (LMICs) struggle to reduce their persistently high level of tobacco use while spending a significant amount of their healthcare budget on tobacco-related diseases.

These preventable expenditures along with pandemic-related expenses are putting the Ministries of Finance in a quandary.

ASEAN countries are lagging behind in terms of using tobacco taxes to curb tobacco use even though some countries like the Philippines have made significant progress in recent years.

Most ASEAN countries lack a long-term tax policy plan and neither review nor update their policies according to their fiscal and public health targets. The main obstacles to effective tobacco tax policies include complex tax structures, small tax changes that fail to decrease affordability of tobacco use, and weak tax administration.

Credit: Southeast Asia Tobacco Control Alliance (SEATCA)

These obstacles are perpetuated by the tobacco industry’s interference. Transnational tobacco companies routinely target LMICs to increase their profits and made special efforts to ensure that their customers kept smoking throughout the pandemic.

In the ASEAN region, home to 122 million smokers, the tobacco industry is thwarting tax increases to keep cigarette prices low, obtaining delays in paying taxes, offering promotions to customers and providing charitable contributions to resource-starved governments to earn political favors.

A 2020 survey by the Southeast Asia Tobacco Control Alliance (SEATCA) in seven countries (Cambodia, Indonesia, Lao PDR, Myanmar, Philippines, Thailand, and Vietnam) revealed tobacco industry interference to be one of the key obstacles in achieving higher excise tax revenue across the region.

The industry publicizes exaggerated illicit trade data, falsely predicts economic disasters, and co-opts high profile allies to discourage tax increases. Policymakers and politicians need to be aware of these industry efforts and protect the public interest from industry interference.

A recent SEATCA study in four ASEAN countries (Cambodia, Indonesia, Myanmar, and Vietnam) revealed that governments are missing out on collecting a substantial amount of tobacco tax revenue as a result of failure to raise tobacco taxes to recommended levels, simplify complex tax structures, and/or remove tax benefits to tobacco companies.

The study highlighted that 1.3 million premature deaths could have been prevented and an additional USD 4.81 billion tax revenue could have been collected in the last two years had their governments implemented effective tobacco tax policy.

Lao PDR is also missing out on tax revenue due to an unfair joint venture between the government and cigarette manufacturers which resulted in the tobacco companies not paying their fair share of tax and their refusal to provide their mandatory contribution to the Tobacco Control Fund (TCF) established seven years ago.

As a result, the Lao government has lost excise tax revenue in excess of USD 142.9 million from 2002-2019 and TCF revenue of USD 18 million from 2014 – 2019.

Tobacco tax policy is a low-cost tool that governments can use to achieve sustainable revenue for health and social development. This could greatly help during the pandemic to pay for vaccinations and therapeutics in the fight against COVID-19.

LMICs in search of revenue to balance their pandemic-related financial and economic losses should prioritize tobacco tax policy as a public health intervention, because it has the potential of both saving lives and generating substantial revenue.

Dr Hana Ross is the Principal Research Officer of Research on Economics for Excisable Products (REEP), at the University of Cape Town, South Africa & Sophapan Ratanachena-McWhortor is the Tobacco Tax Program Manager for SEATCA

 


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