Dr dorotheo on sea tax practices

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Southeast Asia Tobacco Control Alliance

Tobacco Taxes and Health Promotion Funding

Mechanisms: International Best Practices

Ulysses Dorotheo, MD, FPAO Project Director, Southeast Asia Initiative on Tobacco Tax

Seminar on Health Promotion Funding and Tobacco Tax 22 June 2010 * UP College of Law

In a nutshell

Raise taxes and prices of tobacco •  Increase government revenue •  Save lives •  Improve quality of life

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•  a. How does Philippines compare with other countries in terms of taxes? In terms of earmarking?

•  b. What is HPF? And other forms of funding mechanism for HPF?

•  c. In other countries, how has HPF contributed to the economy? To tobacco control and public health in general? To other advocacies: health financing/ insurance, environment, social welfare, sports, education, alternative farming, etcd.

•  Describe the benefits of investing in “Social Mobilization.” (Give examples of success stories).

•  What are the characteristics of a good HPF model?

Southeast Asia Tobacco Control Alliance

Poverty is not just about living on less than $1 a day

Lack of opportunities Lack of capabilities

Lack of security Lack of empowerment

* Lack of a health-supporting living environment

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Poverty, Health, and MDGs •  The MDGs derive from the UN Millennium Declaration 2000.

They call on Member States to work together to eliminate extreme poverty and hunger, to improve health, and promote human development and sustainable economic progress in the world’s poorest nations.

•  The World Health Organization Commission on Macroeconomics and Health in 2001 highlighted the link between poor health and lack of economic progress. It identified tobacco as a major avoidable cause of illness and premature death in low income countries and urged that tobacco control be enacted to improve the prospects of the world’s poorest billion people.

•  The WHO Framework on Tobacco Control (WHO FCTC) includes comprehensive measures to reduce demand, minimize harm, and control cross-border tobacco promotion and illicit trade.

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Health Statistics and Informatics

Mortality rates among men and women aged 15–59 years, region and cause-of-death group, 2004

WESTERN PACIFIC Deaths in 2000 attributable to selected leading risk factors

Number of deaths (000s)

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A third (or 430 million) of the world’s smokers are found in the

WP Region.

2 people die each minute from a tobacco-related disease in the WP Region.

*10 Filipinos every hour

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17% Filipino youth

13-15 years

currently smoke cigarettes

Source: Philippine GYTS 2007

•  Hunger and malnutrition are made worse where scare resources are used for tobacco.

•  Smoking rates among the uneducated or less educated outstrip rates among the more educated.

•  Exposure to advertising, promotion and sponsorship is higher in dense urban areas that have media access.

Relevant FCTC provisions • Price and tax measures • Ban on sale to and by minors • Packaging and labeling • Tobacco advertising, sponsorship and promotion • Demand reduction in relation to tobacco dependence • Protection of the environment and health of persons working in tobacco production

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•  The tobacco industry employs children in cultivation and production in the developing world.

•  Very poor families spend money on tobacco rather than education for their children.

Relevant FCTC provisions • Price and tax measures • Packaging and labeling • Tobacco advertising, promotion and Sponsorship • Ban on sale to and by minors • Demand reduction in relation to tobacco dependence • Support for economically viable alternatives • Protection of the environment and health of persons working in the tobacco industry

•  Advertising encourages women in developing countries to smoke as a sign of independence and success.


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•  Women who use tobacco have smaller babies, who are weaker and more likely to die. Passive smoke disproportionately affects women and children and increases respiratory and other diseases in children.


•  Poor maternal nutrition and health are major causes of infant mortality. Money spent on tobacco deprives mothers and babies of food and possibly medical attention.


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•  Smoking causes further illness in those with HIV/AIDS, including bacterial pneumonia and AIDS-related dementia. Smoking causes sub clinical tuberculosis to advance to clinical tuberculosis and increased risk of death.


•  Globally, land is cleared for tobacco farming and wood-fired curing at the rate of 200,000 hectares per year. This accounts for 5% of deforestation in developing countries, especially among major tobacco producers such as China, Malawi and Zimbabwe.

Relevant FCTC provisions • Price and tax measures • Support for economically viable alternatives • Protection of the environment and health of persons working in the tobacco industry

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•  MDG implementation should incorporate tobacco control because by this means healthy development and macroeconomic gains can be made. Modelling shows that millions of people will avoid or quit using tobacco and millions of lives will be saved if tobacco control measures are adopted.

Relevant FCTC provisions • Price and tax measures • Packaging and labeling • Tobacco advertising, promotion and Sponsorship • Demand reduction in relation to tobacco dependence • Support for economically viable alternatives • Protection of the environment and health of persons working in the tobacco industry

Tobacco tax in ASEAN Country Excise tax %* Total tax %**

Cambodia 10 20 / 25

Indonesia 45 ave 55 ave

Lao PDR 15 (55) 10

Malaysia 45-65

Philippines 14-42 24-53

Singapore 69

Thailand 80 70

Vietnam 65 45

*% of ex-factory price or production cost

*% of retail price

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Tobacco Tax Policy Singapore�

Smoking Prevalence (18-69 years)

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Public Education

Partnerships Legislation Taxation

Smoking Cessation Services

Reduce Reduce Supply Demand

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Impact of Tobacco Tax on Consumption

Singapore’s Tax System

All tobacco products are subject to

Tax goes into Government’s consolidated funds.

"   excise tax "   goods and services tax (GST) 7% (on the cost, insurance and freight incurred + tobacco tax)

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Retail Price 20 sticks S$

Excise Duty of Cigarettes S$

Year

9.50 0.293 per stick of < 1g 2004

7.70 255 per kg Mar 2003 6.50 210 per kg 2002 6.90 180 per kg 2001 6.40 150 per kg 2000 5.80 130 per kg 1998 - 99

NA 14 per kg 1983

11.00 0.352 per stick of <1g 2005 - 2008

5.50 115 per kg 1995 - 98 4.90 60 per kg 1993

2.80 34 per kg 1987

3.70 50 per kg 1991 3.30 42 per kg 1990

N/A N/A 1972

8.50 0.255 per stick of <1g July 2003

Up to Mar 2003 (by weight) "   Excise duty on cigarettes was by weight per kg

of tobacco

From July 2003 (by stick) "   Excise duty on cigarettes was revised:

"  Each stick of cigarette not exceeding 1g was levied a duty of 25.5 cents;

"  Each additional 1g or part thereof was levied a duty of 25.5 cents.

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"   Emergence of low price cigarettes (LPCs) in 2000

"   LPCs had lower amount of tobacco content and thus lower weight per cigarette

"   Shift in consumer behaviour pattern. Sale of LPCs increased from 6% in 2000 to 25% in 2003

"   The average retail price for a 20-stick pack of LPCs was $5.50, while the price for conventional cigarettes was $6.50

"   LPCs attracted the young who were contemplating picking up smoking

Real Price Per Capita Consumption

Real Retail Price vs Per Capita Cigarette Consumption

Year

0

1

2

3

4

5

6

7

8

9

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Rea

l Ret

ail P

rice

($)

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

Per C

apita

Con

sum

ptio

n

10 2.20

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From 1985 - 2005

"   300% increase in cigarette price index (or 3 fold increase) averaging 4% increase in price per year

"   57% decrease in per capita cigarette consumption (2.15kg in 1985 - 0.73kg in 2005)

"   10% increase in cigarette price index resulted in 6% decrease in consumption

"  Singapore’s tax at 69% has contributed to a big price differential when compared to neighbouring countries.

"  Smuggling has increased significantly over the last 2 years.

"  Will further tax increase lead to increase smuggling?

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Tobacco industry’s own words

“Of all the concerns, there is one-taxation-that alarms us the most. While marketing restrictions and public and passive smoking (restrictions) do depress volume, in our experience taxation depresses it much more severely.”

[1985 Philip Morris document] 36

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Low tax policy option •  Income increased from increased tax

collection from increase sale and industry profit

•  Increased sale means increased number of smokers

•  Increased number of addiction in the young

•  Increased health care expenditure from increased smoking

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Higher tax policy option •  Markedly increased income from tax increase •  Same or decreased amount of cigarette sales •  Same or gradual decrease in number of

smokers •  Decreased number of addiction in the young •  Decreased health care expenditure from

decrease smoking

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Tobacco Tax: Win-Win policy

Win = government receive much more income from tobacco tax

Win = prevent increase number of smoker, less number of children being addicted

Projected effect of tax increase on cigarette sales, revenue and child smoking

Evidence to support tax policy

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Calculate the real price of cigarette Cigarette price VS daily wage

1982 1985 1992 Minimum wage 46 54 128 (Baht/day) Retail price 12 13 15 (Baht/pack) Adjusted retail price 12 14 33 (Baht/pack)

Evidence to support tax policy

Cabinet resolution in 1993:

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Excise tax, cigarette sales and tax revenue

What happened between 1994 - 2007

 8 incidents of tax increase  Average interval between each

increase = 1.6 year  Cigarette retail price rose from 15 to

45 Baht.

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Comparison of Cigarette Sale and Revenue

Financial gain form tax policy (1993 – 2006)

 Average increase tax revenue per year = 14,019 M.Baht = 400 M.USD

 Total increase tax revenue (1994-2006) = 182,247 M.Baht = 5,207 M.USD

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Health Promotion Funding Act 2001

- Setting up of Health Promotion Office - Funding health promotion related

activities with 2% of additional alcohol and cigarette taxes.

-  Annual budget = 50 million US$ ( = 2.5% of MOPH budget)

- An autonomous state agency. (Annual budget = 75 million US$ in 2007 )

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Major programs funded by Thai Health

7. Healthy Workplace

8. Healthy Communities

9. Open Grant (Reactive Grant)

10. Social Marketing

11. Support Programs

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Excise tax, cigarette sales and tax revenue

*ASEAN imports

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Using Tobacco Tax for Tobacco Control in Thailand

WIN-WIN POLICY

Dedicated Tobacco Tax For Tobacco Control and Health Promotion

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Why Win-Win Policy   People with healthy lifestyle are more

productive to country   Health care cost will be decreased in long

term   Money comes from Tobacco industry NOT

government budget - Polluters pay

How is tobacco tax used for tobacco control?   Earmarked / dedicated   Surcharged Why: A dedicated levy from tobacco tax, does

not come from the general health budget, and does not have to compete with other items

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ADVANTAGES   Independent but accountable   Provides a a sustainable base & structure for

health promotion   Longer-term investment in health promotion

Thailand: situa-on analysis   Total popula-on = 65 million   Number of smokers = 10 million   Deaths from tobacco = 52,000 /year   Lung cancer deaths = 10,000 /year   Estimated economic loss = 414-1200 M $

74

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Thailand: situa-on analysis   Per capita alcohol consump-on rank 7th

of the world   Less than 1/3 of Thais exercise regularly   Traffic accidents claim 30 lives per day /

13,000 deaths per year -‐  Traffic accidents cost USD 1.7 M =

2.25-‐3.48% of GDP

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10% reduced: $500 M saved   If health promotion efforts succeed in

reducing expenditure in these three areas (tobacco, alcohol, traffic accident) by 10 percent, the country would save 488 million US$ per year.

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Proposal to set up ThaiHealth Secure funding for health promotion including

tobacco by requiring the tobacco and alcohol companies to pay an additional 2% tax into a special account for health promotion

Why special funding? 1.  Health promotion and tobacco control needs

regular and sustainable budget 2.  Less susceptible to diversion of funding for

other purposes.

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How much is 2%?   Total Annual health expenditure $6097 million   MOPH budget = $1707 million   Tobacco & alcohol Tax = $2195 million   2 % of tobacco and alcohol tax

= $44 million = 2.57% of MOPH budget

= 0.72% of Total health expenditure = 0.15% of Total budget

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A lot of homework and effort   Research and evidence

  Economic argument   Best practice from other countries

  Work closely with Ministry of Finance   Mobilizing support

  Media   Public Health and Health promotion community   Policy makers

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Long and winding road but finally.. 1995-1998 Homework between MOH, Tobacco

Control Advocates and MOF 1998 The Cabinet approved Thai Health

Promotion Bill 1999-2001 Draft Bill was discussed in the

Parliament 2001 Parliament enacted the Bill

2001: Thai Health Fund established

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ThaiHealth’s income (2009)

  Total 78 Million USD   Tobacco tax 26 M USD   Alcohol 52 M USD

Tobacco tax

33% Alcohol

tax 67%

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How much ThaiHealth fund tobacco control

Tobacco Control Budget in 2009: 6.3 Million USD

Policy Development

and Enforcement

11%

Research and Information

39%

Social mobilizatuion, Mass Media Campaigns

and Quit line 32%

Professional Networks

18%

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Key Organizations working on tobacco control

  Action on Smoking and Health Foundation (1986)   National Committee on Tobacco Control (Policy

development) (1989)   Tobacco Control Unit at MOH (1989)   Thai Health Promotion Institute (NGOs) (1996)   Southeast Asia Tobacco Control Alliance (2001)   Health Professionals against Tobacco (2005)   Tobacco Control Research Center (2005)   National Quitline (2009)   Many community based programs

In a nutshell Raise taxes and prices of tobacco   Increase government revenue   Save lives   Improve quality of life

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For more information

  www.thaihealth.or.th

  www.seatca.org

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Dr dorotheo on sea tax practices