Sierra Leone: Tobacco tax hikes reduce smoking and smuggling

According to a study published in the journal Tobacco Control, tobacco tax increases in Sierra Leone have led to a decrease in smoking prevalence, an increase in tax revenues, and a likely decrease in illicit tobacco trade consumption. These findings add to the body of work pointing to the lack of correlation between tax increases and illicit trade levels, even in a region with low and middle income levels, and in a context of limited public power.

The argument that tobacco tax increases promote illicit trade, which results in lower tax revenues, adverse effects on public health and increased crime, is regularly used by the tobacco industry and its allies. While scientific research now tends to refute this claim, research is needed to assess the relationship between tax levels and illicit trade in tobacco products.[1].

Sierra Leone, a case study for studying the question of the relationship between tax increases and smuggling

Sierra Leone lags behind in tobacco control. In 2009, the country ratified the WHO Framework Convention on Tobacco Control (FCTC), but has since introduced very few measures to curb tobacco use. For example, tobacco advertising is still allowed, while plain packaging or even warnings on tobacco packages are not on the agenda. In terms of combating smuggling, the country has not adopted a tax stamp or a tracking and tracing system for tobacco products, despite evidence that illicit trade is widespread in the region, particularly from Guinea-Conakry, which borders Sierra Leone. Furthermore, the researchers point out that the country, with its high levels of corruption and lack of funding for its institutions, is effectively limited in its ability to combat illicit trade.

Between 2017 and 2018, Sierra Leone significantly increased taxes on tobacco, introducing an excise ad valorem of 30% on cigarettes, and tripling import duties on all tobacco products. Despite these increases, these rates remain below those imposed by the 2017 directive of the Economic Community of West African States (ECOWAS). For all these reasons, the context of Sierra Leone is a particularly interesting field of study to verify to what extent tax increases are associated or not with an increase in illicit trade.

Tax increases have achieved their main objectives, despite an unfavorable context

Despite an increase in population, the number of smokers has decreased significantly following the increase in taxes on tobacco products. Furthermore, the study shows that these increases have also resulted in a doubling of tax revenues on cigarette sales, although these have significantly decreased. Finally, the researchers tend to demonstrate that the price increases on tobacco products have probably reduced the importance of contraband. Thus, in 2013, 42,67% of tobacco products consumed in the country were contraband products, compared to 25,92% in 2019, a reduction of more than 16 points.

The debate over the relationship between tax increases and smuggling is now settled

Independent studies on the relationship between taxation and levels of illicit trade mention that while the price factor should not be ignored, others appear to be more decisive, such as the level of corruption in a country, the State's capacity for action, and the existence or absence of control over the supply of tobacco products. However, the example of Sierra Leone seems to demonstrate that tax increases can be effective and contribute to reducing smuggling, even in a country that has not introduced a tax stamp or a tracking and tracing system. For the researchers, these results should not dissuade public authorities from setting up a tax stamp or a tracking and tracing system. On the other hand, for the authors of the study, the question of whether tax increases lead to an increase in illicit trade must be considered as settled.

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[1] Gallien M, Occhiali G, No smoking gun: tobacco taxation and smuggling in Sierra Leone, Tobacco Control Published Online First: 02 June, 2022. doi: 10.1136/tobaccocontrol-2021-057163