Highest increase in cigarette consumption in the world

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Curbing the Epidemic Governments and the
Economics of Tobacco Control
Global Evidence and Indonesia By Ayda A.
Yurekli, Ph.D Economics of Tobacco Control
Seminar in Jakarta, Indonesia November 2000
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Why did the World Bank produce this report?
Economic arguments for, or against, tobacco
control are unclear and often debated

• Government Revenues from Tobacco Taxes
• Jobs in Agriculture, Manufacture etc.
• Possible smuggling
• Cost to individuals, especially the poor

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Importance of Tobacco to Indonesian Economy in
1997

• Produced 4 of global production
• 0.45 of all export earnings,
• 2 of global tobacco export
• 10 million employment related to tobacco
• 172,000 Manufacturing tobacco employment,
  including 120,000 hand-made kreteks producers
• Government revenue Rp.10.3 trillion in 2000

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Unless current smokers quit, smoking deaths will
rise dramatically over the next 50 years
Source Peto and others, 1994 Peto, personal
communication.
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Higher Increase in Cigarette Consumption
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Which interventions are effective?Measures to
reduce demand

• Higher cigarette taxes
• Non-price measures consumer information,
  research, cigarette advertising and promotion
  bans, warning labels and restrictions on public
  smoking
• Increased access to nicotine replacement (NRT)
  and other cessation therapies

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Taxation is the most effective measure

• Higher taxes induce quitting and prevent starting
• A 10 price increase reduces demand by
• 4 in high-income countries
• 8 in low or middle-income countries
• Young people and the poor are the most price
  responsive

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What is the right level of tax?

• Complex question
• Depends on various factors, degree to which
  society wishes to protect children, revenue
  considerations, etc.
• Useful yardstick where comprehensive programs
  used, tax is at least 2/3 to 4/5 of retail price.

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Cigarette tax levels are lower in low or
middle-income countries
Source Authors calculations
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Tax share in average retail price of cigarettes
varies among countries
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The Share of Cigarette Excise Tax Revenues in
Total and Excise Tax Revenues in Indonesia
1992-1996
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Real Cigarette Excise Tax Revenue and Its Rate of
Increase from the Previous Year, Indonesia,
1993-2000
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As cigarette tax rises, revenues increase too
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Tobacco smuggling tends to rise in line with the
degree of corruptionSmuggling as a function of
transparency index
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Canadian Government reduced tobacco tax rates
dramatically in February 1993
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Sweden decreased cigarette taxes (17) due to
fear of smuggling in 1998
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Summary

• Tobacco deaths worldwide are large and growing,
  and have higher burdens in the poor
• Specific market failures support government
  intervention
• Demand measures, chiefly tax increases,
  information, and regulation are most effective to
  reduce consumption
• Control of smuggling is the major supply-side
  intervention
• Tobacco control is cost-effective