Time to Raise Taxes on Cigarette

EghtesadOnline: From a moral standpoint, policymakers should not prioritize the interests of powerful economic entities over public welfare. However, when it came to deciding the cigarette tax rates last week, the Iranian Parliament failed to adopt such a position.

News ID: ۷۸۱۹۰۵

25 February 2018

Lawmakers rejected the modest proposal included in next year’s budget bill (March 2018-19) on raising cigarette tax rates—a 350-rial (0.77 cents) tax hike in retail prices of locally and jointly produced Iranian cigarettes and a rise of 500 rials (1.1 cent) in retail duty of imported cigarettes. They replaced the proposed rates with the dismal hikes of 75 rials (0.16 cents) and 150 rials (0.33 cents) for locally and jointly produced Iranian cigarettes respectively and a rise of 600 rials (1.3 cents) in retail tax of imported cigarettes.

A letter of protest by local cigarette producers and distributors to the parliament suggested that high taxes on cigarettes cause a surge in smuggling, hurt local production and hamper employment.

> Tried and Tested

This comes as many studies by the World Bank and other specialized agencies prove that the black market is not as menacing as it seems and revenues raised by increasing cigarette taxes can help suppress it, according to Financial Tribune.

A growing number of countries, including the Philippines, Brazil, Turkey and Uruguay, are showing the way. The Philippines, for example, raised the tax on all types of cigarettes more than fourfold in 2012.

As a result, prices of the cheapest brands, accounting for about two-thirds of all cigarettes, rose by more than 50%. In 2011-15, tobacco-tax revenues more than doubled and the share of adults who smoked fell from 30% to 25%. By comparison, Britain took more than a decade to achieve the same change in smoking rates, the Economist reported.

Heavy taxation is highly effective in reducing cigarette consumption. This approach has worked in poor countries as well as in rich ones and will work in Iran too, the head of Tobacco Control Research Center of the Iranian Anti-Tobacco Association told Financial Tribune.

“There are about one billion smokers in the world, 80% of this population live in low- and middle-income countries. One out of 30 Iranian teenagers smokes cigarettes or hookah. One in 20 hospital beds in Iran are occupied by someone suffering from the adverse effects of smoking. Smoking among Iranian teenage girls has more than doubled to reach 2.1% in recent years,” Nassir Dehqan said.

Noting that an average of seven million global deaths is attributed to smoking, the health mentor said, “In Iran, about 50,000 people die from cigarette-triggered illnesses annually. Iranians spend up to 80 billion rials ($1.77 million) on smoking daily. The point is smoking-attributable healthcare spending (hospital care, physician and clinical services, prescription drugs, etc.) is more than twice that figure. On the other hand, cigarette smoking causes premature death and lost productivity: life expectancy for smokers is at least 15 years shorter than for nonsmokers.”

Dehqan stressed that as the success in rich countries has proved, a combination of taxes and public-health education would get people to stop smoking.

> A Haven for Smokers

Studies show a 10% rise in tobacco tax results in around 4% decrease in cigarette consumption in countries with high levels of per capita GDP and a 5% decline in low- and middle-income countries, the head of Tobacco Control Research Center said.

“Cigarette tax stands at 11% in Iran whereas it hovers around 70% in 34 countries. Iran is among the 10% most affordable countries for smokers. It has been ranked the 181st expensive country in the world to buy cigarettes,” he added.

A single cigarette costs between 1,000 rials (2.2 cents) and 10,000 rials (22.2 cents) in Iran, whereas in countries that have successfully used tax policies to regulate the price of cigarette products, such as Australia, a pack of cigarettes containing 20 sticks can cost up to $18.

Comparing the average price of a pack of cigarettes to how long it takes to buy that pack based on minutes of work is another clear indication that cigarettes are ridiculously cheap in Iran.

“A pack of cigarettes can be purchased after approximately 17 minutes of work [on average] in the United States, whereas in Canada, it takes 31 minutes to earn those 20 cigarettes. At the bottom of the list are Russia, Ukraine, Japan and Brazil, as well as Iran, where a pack can be earned in anywhere from 5 to 15 minutes," Dehqan said.

“In India, a country not far off from Iran, people have to work pretty hard to support their bad habit. They have to work around 70 minutes to earn enough to buy a pack of cigarettes.”

Tobacco taxation is still the most cost-effective method for decreasing the prevalence of smoking. Increases in tobacco taxes have encouraged smokers to quit and in the long run, the main effect of taxation is a reduction in the incidence of new young smokers.

It is high time Iranian authorities help their citizens kick the habit and earn some useful cash while they do it.