Does tobacco tax actually work?

Evidence suggests high taxes lead to significant health and economic benefits

Almost six million people die every year due to tobacco.
Powered by automated translation

The logic goes something like this: if smoking is expensive, more people will kick the habit. In other words, it is possible to tax something to extinction. But there is a catch: the levy must be high enough. The World Health Organisation recommends that at least 75 per cent of the price of a pack of cigarettes should be tax for the price to have an impact.

There are many negative health effects of smoking, as research has shown time and again. Many people argue that individuals should have the right to destroy their own bodies, but that line of argument ignores the harmful effects of passive smoking.

Almost six million people die every year due to tobacco. But that has not deterred smokers, of which there are one billion globally. In this region, the statistics are just as bad. Gulf Cooperation Council countries are home to millions of smokers who consume up to 50 billion cigarettes annually and cost governments more than $500 million (Dh2bn) in healthcare claims as a result.

With oil revenue shrinking, regional countries are taking note of the large health and economic burden that smokers inflict on their treasuries. Last year, Saudi Arabia said it would impose a 100 per cent tax on tobacco and energy drinks and a 50 per cent tax on sugary soft drinks from the second quarter of 2017.

Sugary soft drinks have been blamed for fostering high rates of childhood obesity and diabetes in this region.

In the UAE, a can of carbonated cola costs about Dh1.50. Cigarette prices are also low.

Australia is among the most expensive places in the world to buy a pack of cigarettes. A 2015 Deutsche Bank study found Australian cigarettes were significantly more expensive than similar packs in London or New York. And the prices were much more expensive than some products on offer in China, where nearly a third of the population smokes.

In India, cigarettes, particularly handmade ones, known as bidis, as well as chewing tobacco, are more affordable today than ever before. The result: India has the world’s second-largest population of smokers after China. However, both these countries are beginning to realise that health costs and other hidden expenses resulting from smoking are far higher than the income generated from the tobacco industry.

Australia announced last year that it would hike tobacco excise by 12.5 per cent each year for the next four years. Similar large price increases led to larger-than-usual declines in tobacco consumption. Data from the UK and the US also show a strong correlation between increasing prices and decreasing consumption.

These examples confirm that a failure to significantly increase taxes on tobacco products will certainly lead to more death, disease and economic losses.