The economic cost of smoking is estimated at $1 400 billion worldwide

According to the new World Health Organization (WHO) technical manual on tobacco tax policy and administration[1], the overall economic cost of smoking (including medical costs and productivity losses due to death and disability) has been estimated at more than $1.4 trillion per year, or $1.81 trillion of the world's annual gross domestic product (GDP).

Tobacco use is the leading cause of preventable death worldwide, killing 8 million people each year. Despite being the most effective tobacco control measure, tobacco taxation is largely underused in public policy. In 2018, only 38 countries, covering 14% of the world’s population, had sufficiently high levels of tobacco taxation (i.e. taxes representing at least 70% of the product retail price)[2]. This failure to advance tobacco taxation to lead to significant price increases, leads to avoidable illness and premature death as well as loss of revenue for governments. Only tobacco companies benefit.

This report supports the provisions of the WHO Framework Convention on Tobacco Control (FCTC) calling on governments to increase tobacco taxes to reduce tobacco use and achieve their health goals. As countries have become Parties to the treaty, many have adopted significant increases in tobacco taxes to reduce tobacco use and the deaths, illnesses and economic costs it causes[3].

Tobacco industry's arguments for weakening tax policies

The WHO report states that tobacco industry interference remains a major obstacle to significant tax increases in many countries. Tobacco companies use several arguments to oppose and weaken tax policies:

- The tobacco industry and its allies argue that tobacco tax increases will inevitably lead to an increase in illicit trade in tobacco products, which will hurt tax revenues. This argument has in fact been widely refuted. Tobacco taxes are not the primary driver of cigarette smuggling, and the benefits of increasing tobacco taxes for public health and increased tax revenues are well demonstrated. Many countries have increased tobacco taxes without seeing an increase in illicit trade. Research shows that illicit trade is positively correlated with many other prevailing factors: the level of corruption in a country, the lack of supply chain controls, and the tolerance of governments for illicit trade.[4].

- The tobacco industry and its allies often claim that tobacco tax increases will have an overall negative impact on a country's economy.[5]. However, tobacco growing and manufacturing represent a very small share of a country's economic activity and in most countries this share is declining. In general, employment in tobacco growing is very small compared to other agricultural activities. Data on this agricultural sector have shown that tobacco farmers are making more losses than profits. Moreover, the financial situation of tobacco farmers is much more affected by adverse business decisions by the industry than by any tobacco control measures. The manufacturing of tobacco products generates very few jobs and these jobs are also declining due to automation and mechanization of the process and also due to the many mergers that have taken place in the sector.

- Another argument raised by the industry is that tax increases will harm the most vulnerable populations. Many studies show that increasing taxes on tobacco products is a very effective measure to reduce tobacco consumption and improve people's health but also reduce the poverty rate.[6]-[7]WHO estimates that 100 million people fall into extreme poverty each year because of spending on treating so-called non-communicable diseases caused by smoking.[8] at the expense of households.

The importance of effective tax policies on development and income in some countries

The Gambia has significantly reduced cigarette consumption through its tobacco tax policy. In 2012, cigarette prices in The Gambia were among the lowest in the African region[9]With the support of WHO, the country has developed a plan to increase the price of cigarettes.[10] through tax increases. This strategy was a success and led to an even more ambitious plan to increase tobacco taxes in the following years. As a result, the revenues generated in 2018 were almost three times higher than in 2011. At the same time, cigarette imports were reduced by more than 60%, allowing the country to free up room for action to develop.

In Colombia, rising cigarette prices have led to a significant decline in consumption. In 2016, Colombia was the second most affordable country in the Americas (after Paraguay). As part of a comprehensive tax reform in 2016, the specific tax rate on cigarettes was tripled between 2016 and 2018, with the real price increasing by 4% per year after 2019. The results: cigarette consumption fell by 34% in 2018 and tax revenues, which are earmarked to finance universal health coverage (UHC), nearly doubled.[11].

In the Philippines, the 2012 "Sin Tax" reform led to substantial reductions in tobacco consumption and an increase in revenue used for UHC.[12]. Two years after the law was passed, the Philippine Department of Health’s budget has increased from $1.25 billion to nearly $1.42 billion. Cigarette taxes are now at an all-time high with increases of five pesos per year through 2023, and with automatic increases of $51.32 thereafter. Thanks to improved tax administration and stricter enforcement, the government fined a domestic tobacco company for tax evasion in 2017, resulting in the largest tax settlement in Philippine history, worth $600 million.

Keywords: WHO, economic cost, tobacco, taxes, taxation, smoking, tobacco industry

©Generation Without Tobacco

[1] WHO technical manual on tobacco tax policy and administration, Geneva: World Health Organization; 2021. License: CC BY-NC-SA 3.0 IGO.

[2] Press release, US$ 1.4 trillion lost every year to tobacco use - New tobacco tax manual shows ways to save lives, money and build back better after COVID-19, WHO, April 12, 2021, accessed April 14, 2021

[3] Countries share examples of how tobacco tax policies create win-wins for development, health and revenues, WHO, April 12, 2021, accessed April 14, 2021

[4] CNCT, Illicit trade, smuggling, counterfeiting: myths and realities, April 14, 2021, consulted the same day

[5] Ross, H. (2018). Tobacco Industry Strategies to Reduce Tax Liability. Cape Town: SALDRU, UCT. (SALDRU Working Paper Number 225).

[6] The health, poverty, and financial consequences of a cigarette price increase among 500 million male smokers in 13 middle-income countries: compartmental model study BMJ 2018; doi:10.1136/bmj.k1162

[7] CNCT, Significant tax increases encourage the poorest to stop and reduce poverty, April 23, 2018, accessed April 14, 2021

[8] World Health Organization. Health systems financing: the path to universal coverage. The world health report.World Health Organization, 2010

[9] Chisha Z, Janneh ML, Ross H Consumption of legal and illegal cigarettes in the Gambia Tobacco Control 2020;29:s254-s259.

^[10] WHO supports Gambia to strengthen tobacco taxation, WHO, December 2, 2018, April 14, 2021

[11] Erin James, Akshar Saxena, Camila Franco Restrepo, Blanca Llorente, Andrés Vecino Ortiz, Manuela Villar Uribe, Roberto F. Iunes, Stéphane Verguet, The distributional consequences of increasing tobacco taxes on Colombia's Health and finances - An extended cost-effectiveness analysis, World Bank, 2019

[12] WHO, “Sin Tax” expands health coverage in the Philippines, May 2015

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