Dr dorotheo on sea tax practices

8/2/10

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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8/2/10

•  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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8/2/10

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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8/2/10

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

Health Statistics and Informatics

WESTERN PACIFIC
Deaths in 2000 attributable to selected leading risk factors

Number of deaths (000s)

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8/2/10

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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8/2/10

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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8/2/10

•  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.

• Tobacco advertising, promotion and
Sponsorship
• Demand reduction in relation to
tobacco dependence
• Support for economically viable alternatives
of persons working in the tobacco industry

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

Sponsorship
tobacco dependence

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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.

Sponsorship
tobacco dependence

•  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.

Sponsorship
tobacco dependence

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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.

Sponsorship
tobacco dependence

•  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.


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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.

Sponsorship
tobacco dependence

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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Reduce Reduce
Public
Supply Demand
Education

Legislation
Partnerships
Taxation

Smoking
Cessation
Services

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8/2/10

Impact of Tobacco Tax on Consumption

Singapore’s Tax System

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

Tax goes into Government’s consolidated funds.

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Year Excise Duty of Cigarettes Retail Price 20 sticks
S$ S$

1972 N/A N/A
1983 14 per kg NA
1987 34 per kg 2.80
1990 42 per kg 3.30
1991 50 per kg 3.70
1993 60 per kg 4.90
1995 - 98 115 per kg 5.50
1998 - 99 130 per kg 5.80
2000 150 per kg 6.40
2001 180 per kg 6.90
2002 210 per kg 6.50
Mar 2003 255 per kg 7.70
July 2003 0.255 per stick of <1g 8.50
2004 0.293 per stick of < 1g 9.50
2005 - 2008 0.352 per stick of <1g 11.00

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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8/2/10

"   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 Retail Price vs Per Capita Cigarette Consumption
10 2.20

2.00
9

1.80
8
Per Capita Consumption
Real Retail Price ($)

1.60
7

1.40
6
1.20
5

1.00
4

3 0.80

0.60
2
0.40
1

0 0.20
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Year
Real Price Per Capita Consumption

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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

37

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

38

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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

Evidence to support tax policy
Projected effect of tax increase on
cigarette sales, revenue and child smoking

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Evidence to support tax policy
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)

Cabinet resolution in 1993:

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8/2/10

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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8/2/10

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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8/2/10

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

Dedicated Tobacco Tax
For Tobacco Control and Health Promotion

WIN-WIN POLICY

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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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8/2/10

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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8/2/10

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

75

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.

76

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8/2/10

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

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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8/2/10

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
79

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
Tobacco
  Alcohol 52 M USD tax
33%
Alcohol
tax
67%

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How much ThaiHealth fund tobacco control
Professional Policy
Networks Development
18% and
Enforcement
11%

Social Research and
mobilizatuion, Information
Mass Media 39%
Campaigns
and Quit line
32%

Tobacco Control Budget in 2009: 6.3 Million USD

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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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8/2/10

For more information
  www.thaihealth.or.th

  www.seatca.org

45

Dr dorotheo on sea tax practices

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