Taxes levied on Cigarettes.ppt

Taxes levied on Cigarettes By Ayda A. Yurekli, PhD. Program Leader, Research for International Tobacco Control (RITC) at International Development Research Center (IDRC), Ottawa, Canada Content Types of taxes levied on cigarettes Tax structure World wide Excise application Advantages and disadvantages of types of excise Impact of types of excises on retail price Over view on tax and average retail price of cigarette levels by income group countries and regions Structure of Excise Taxes Specific: tax base is physical unit (e.g. per kilo or per stick) Ad valorem: tax base is value of sales (e.g. percentage of wholesale or retail price) Specific Ad valorem Taxes: Combination of both excises Excise System by Region Income groups Advantages of Excises Specific Excises Simplicity Tax liability easy to measure Taxes prepaid on sales Health benefits External costs of smoking same for high and low price brands – tax rate should be the same Ad Valorem Excise Tax liability Indexed to cigarette price inflation Discourages substitution from low-price to high-price brands – and so generates higher revenues Discourages investment in advertising to make smoking “glamorous” Disadvantages of Types of Excises Specific Excise Revenues do not increase automatically with inflation Encourages improving “quality” of cigarettes Encourages substitution to (high-price) imported brands; or smuggled-tax free low-quality alternatives Increases potential for tax avoidance and revenue loss if tax base set on characteristic of cigarettes (e.g. weight, content, size of cigarettes) Ad Valorem Excise Difficult to collect at retail points of sale Creates potential for tax avoidance and revenue loss Smaller health benefits than equivalent specific tax Types of Excises and Their Impact on Average Retail Price Average price by Excise Type in Low Income Group Countries Average price by Excise Type in Middle Income Group Countries Tax and Price Structure of Cigarettes by Income Group and Re