Justification Of Tobacco Taxation With Health Reasons

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Topic: JUSTIFICATION OF TOBACCO TAXATION WITH HEALTH REASONS

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Introduction

Tobacco usage remains a controversial issue in most countries, due to the medically

proven health impact of the product (Montesano & Hall, 2001). There have even been cases

where some countries have banned the importation of tobacco products with the aim of

minimising the level of exposure of citizens to tobacco use. But due to growing popularity and

impact of globalisation, such attempts have largely failed as they are considered as breaching fair

trade practices on the international scale. Typical example of this situation is Thailand’s ban of

cigarette import from the U.S (Hilts, 1990). With failed attempts to ban importation, one

common practice that has been used is to impose high excise tax on tobacco products with the

justifications directed at health concerns. From an economic point of view, it is argued that there

is more to this than merely citing health concerns.

Analysis of economic justification of reason for tobacco taxation

When taxes are imposed on tobacco, it comes with a very simple reason that it would

make it more costly to produce and therefore less attractive a business venture for firms (Proctor,

2012). In economic principle also, when the cost of production goes up, it is the consumer that

bears it eventually through the payment of higher prices for products. It has therefore been a

common argument that when prices of tobacco products, relatively fewer people will be able to

afford, thereby reducing the overall level of exposure of people to the product. In some cases, it

has been said that the taxation could go a long way to influence the quantity of products a person

can use within a day, thereby playing a role in achieving declined usage per person (Nutt &

King, 2010). To interrogate this assertion critically, two simple levels of analysis can be

performed. The first of this is to look at the history of growth for the tobacco industry to

determine if the prices imposed have really played that role of discouraging new entrants and

overall patronage for the industry. The value of cigarettes to the global tobacco industry in 2015

was estimated at US$610 billion, which represents a yearly growth of approximately 1.6 since

2005 (Statista, 2016). What is more, a total of 5,800 billion global cigarette consumption was

recorded in 2015, also representing accumulated increase of 2.3% since 2000 (Statista, 2016).

The brief statistics given above is an indication that the industry has become profitable

for firms, contrary to perceive public assertions. It further shows that prices of cigarette and other

tobacco products have not necessarily become a deterrent against its consumption. Even more

serious is the fact that health implications on the use of tobacco continues to increase by the day.

For example in a 2009 World Health Organisation (WHO) report, it was found that “the cost of

treating tobacco-related illnesses and the resulting loss of productivity presents a higher cost of

tobacco consumption to the benefits of taxation” (WHO, 2010). In simple economic terms

therefore, the cost-benefit analysis does not support the claim of taxing tobacco, merely for its

health reasons. With this established, it is important to make the claim from economic

perspective that other than the health concerns, taxing tobacco is an important avenue of raising

revenue for national development (Le Foll & Goldberg, 2005). Indeed in the year 2014, US

President Barack Obama appreciated this fact when he called for an increase in “the federal

excise tax on tobacco products and use the additional revenue to expand preschool education,

which he included in both his fiscal year 2014 and 2015 budgets” (Marr & Huang, 2014). In his

estimation, an accumulated $78 billion could be earned over a period of ten years for the

financing of early childhood education alone (Marr & Huang, 2014).

Conclusion

Based on the discussions so far, it would be said that citing health concerns alone as the

only reason for imposing high taxes on tobacco is not justifiable. This is because the statistics

available do not support this claim. Indeed even if the high prices of tobacco products succeeds

in deterring teenagers and low income earners from patronising the products, the collective

pressure that those who can afford put on the health system goes a long way to affect the poor

and young alike. On the other hand, taxes from tobacco are important sources of national

revenue that can be directed at areas such as education and juvenile delinquency. It is therefore

time for a more holistic approach to be taken when discussing matters of tobacco taxation, so

that other economic benefits such as revenue generation for national development can be

factored in properly.

References

Hilts, P. (1990). Thailand’s cigarette ban upset. New York Times. Retrieved March 31, 2017 from

http://www.nytimes.com/1990/10/04/business/thailand-s-cigarette-ban-upset.html

Le Foll, B. & Goldberg, S. R. (2005). Nicotine induces conditioned place preferences over a

large range of doses in rats. Psychopharmacology. 178(4), 481–492

Marr, C. & Huang, C. (2014). Higher tobacco taxes can improve health and raise revenue.

Retrieved March 31, 2017 from http://www.cbpp.org/research/higher-tobacco-taxes-can-

improve-health-and-raise-revenue

Montesano, R. & Hall, J. (2001). Environmental causes of human cancers. European Journal of

Cancer. 18(4), 81–92

Nutt, D. J. & King, L. A. (2010). Drug harms in the UK: a multicriteria decision analysis. Lancet

(London, England). 376(9752), 1558–1565.

Proctor, R. N. (2012). The history of the discovery of the cigarette-lung cancer link: evidentiary

traditions, corporate denial, global toll. Tobacco Control. 21, pp. 87–91

Statista (2016). Tobacco industry. Retrieved March 31, 2017 from

https://www.statista.com/topics/1593/tobacco/

WHO (2012). Taxation and the economics of tobacco control. Retrieved March 31, 2017 from

http://www.who.int/tobacco/publications/gender/en_tfi_gender_women_taxation_econo

mic_tobacco_control.pdf?ua=1

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