Tobacco tax: good or bad?

Introduction

Tobacco consumption is a leading cause of death, poverty and impoverishment in the world and is seen as a threat to the world’s population. It kills more than 8million people yearly around the world. Deaths from tobacco come from direct tobacco consumption as well as from non- smokers being exposed to second-hand smoke. Therefore, imposing a tax on tobacco and tobacco products is likely to have an effect on the lives of individuals. This paper seeks to unravel some of the reasons why individuals indulge in tobacco consumption. It will also examine how imposing a tax on tobacco will influence consumer behaviour. The last part of this paper will present the effects and problems that stem from tobacco tax in Cameroon and lastly present some policy implications and recommendations.

Why people start using tobacco and the rationale for imposing tobacco tax

The tobacco industry ads and entertainment through music, films, video games display on TV and online are a big influence in our society. Most people start smoking as teenagers either as a result of parent(s) who are smokers or they copy from friends just to look cool . Tobacco is dried and of chewed, sniffed or smoked in cigarette, pipes, or cigars. It is believed that tobacco kill pests, relieve allergies, reduce stress, boost mental strength and so on. In Cameroon, the use of tobacco is evident with not only a growing production but an intense marketing and promotion with delivery vans carrying colours of cigarette brands, umbrellas and calendars of brands like the L&B Bleu, Gold Seal Bleu, Benson & Hedges, L&B Menthol and Gold Seal menthol.

According to the Cameroonian Coalition to Counter Tobacco(C3T) in 2018, there were nearly 1 million active and 7 million passive smokers, with more than 300,000 young people (ages 13 and 15). So far, much has been done by the government and its partners with strong anti-tobacco legislations especially in the domains of banning advertisement on all tobacco products, sensitization. According to Mapa-Tassou et al. (2018), the country is undergoing a rapid socio-economic transition characterized by improving standards of living, rapid unplanned urbanization, and westernization of lifestyles, including increased tobacco use, harmful use of alcohol, unhealthy diet and insufficient physical activity levels.  Therefore, one of the effective ways to control tobacco use is through tobacco tax. The rationale for recommending taxes on tobacco is first as means to discourage it consumption, improve the health of citizens. Therefore, not only is tobacco tax a smoking cessation radar to help in successful quitting attempts, but prevention against any economic loss stemming from tobacco related disease such as cancer of the lung, circulatory diseases and other heart diseases to consumer as well as non-consumers such as babies born for mothers who smoke.

How tobacco tax influences consumer behaviour

Taxes on tobacco consumption in Cameroon take the form of excise duty, custom duty, value added tax, stamp duties or combination of some. However, excise duty is the most effective way to reduce the use of tobacco as recommended in the article 6 of the WHO FCTC. Reason why in 2020, the Cameroon government increased excise duties by 30% but since tobacco contains nicotine and it’s addictive, consumer response can only be seen through their purchase decision in terms of quantity and brand. First, a packet of cigarette sells between CFAF 1,000 to 1,500 but lesser at the Tobacco Bureau, which is CFAF 700 for Malboro and Benson at CFAF 795. With a tax, the price increases making the cigarettes expensive and less affordable to the consumers. In the long run, the tax will reduce the quantity and discourage younger consumers since it reduces the disposal income but for older and wealthier consumers the effect will be least felt. Secondly, tobacco tax may in the short run cause a down-trading to another addictive product like cocaine, heroin, marijuana, alcohol etc, or even habit forming product like gambling since producer and the consumer already form an anti-brand community. Finally, in Cameroon most smokers are of the informal sector and this only mean other consequential choices may arise where consumers tend to take another job or work longer house in order to ensure that they meet up with the extra amount needed to pay for cigarette.

Effects of tobacco tax on Cameroon’s economy

The impact of tobacco tax can be analyzed in terms of productivity and employment and possible fall in tax revenue. On production, the cost born will be transferred to the consumer since the goal of the tax is to discourage consumption, possible reduction in employment in tobacco growing and manufacturing, as well as wholesale, retail. The tobacco industry is likely to experience a drop in demand and an increase in labour cost hence affecting the overall employment. Furthermore, it may lead to a possible reduction in tobacco sales. The Food and Agricultural Organization estimates that unmanufactured tobacco leaf production was steady at around 6000 tons per year between 2012 and 2014. Since 2010, this sector therefore has regular subsidies from the Public Investment Budget of the Ministry of Agriculture, in order to boost the national tobacco production

Taxes say 75% can be aggressive in a case where the poorer groups bears a larger burden and this may reduce the purchasing power and consumption of other goods since there is a fall in discretional income. This is not only a regressive tax but a declining tax as well. Again, when tobacco tax becomes too high it will be some sort of “social engineering” or wedging war on tobacco with a tendentious and heavy advice of “quit or die”. To an extent it may lead to a violation of consumers’ freedom of choice when governments’ role has been extended from creating awareness on the risk of tobacco use to tobacco tax. In modern economic theories, consumers are the best judges how their incomes is supposed to be spent.

In addition, it will be an immediate increase in revenue earmarked to support programmes aimed at protecting people from tobacco smoke and monitoring tobacco use and prevention policies.

Problems of Tobacco Tax

From a global perspective, an increase in tobacco tax will effectively increase the relative price of tobacco products and eventually making them less affordable, thereby saving the lives of consumers with lower income, educational and socioeconomic status. However, two reason can be advanced as objections to this policy. The first is that the poor is affected, since they constitute a majority of consumers, rendering the policy bias with “aggressivity cost” on the them though the benefit accruing may be redistributed to the rich.  Also, it may introduce illicit tobacco trade in the form illegal cigarette production and criminal activities related to it. This may rather push the government (through custom officials) to spend money trying to crack down smugglers and criminals, given that Cameroon borders are weak and couple with CEMAC policy of free movements of goods and persons.

Policy recommendations

  • The government should sensitize on tobacco and brand community especially when the rest of the world is celebrating the world tobacco day every 31st May which could help reduce consumption and dissuades users spending on the product;
  • Also, from the perspective of behavioural economics, tobacco tax alone will not be enough to prevent youth from indulging in its consumption but the fight should be that of reducing “aspirational referencing” like musicians or even “opinion leaders”.
  • Tax parity between tobacco products to maintain a tobacco tax equalisation especially for cigarette, the minimum excise duty is not less than CFAF 5,000 for 1,000 cigarette rods, while cigars are under-taxed, even though they are essentially the same thing and their use carries similar health risks. Taxes should be proportional to the harms of type of tobacco product. This means the medical community should be able to analyse the health hazards, estimate the cost of treating the hazard before estimating how optimal tax is

Conclusion

Tobacco taxes is a comprehensive tobacco consumption and control system. It will magnify efforts to promote quitting, reduce prevalence and intensity of tobacco use among youth and adults. The economic impact is seen on the fact that government revenue increases, productivity increases as it saves health.

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Dr. Odette Kibu is a Senior Health Policy Analyst at the Nkafu Policy Institute and PhD holder in Public Health at the University of Buea

Dr Vera Kum
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Dr Fuein Vera Kum is a Research Fellow at the Nkafu Policy Institute. She joined the institute as Economic Policy Analyst in 2017 with a focus on health economics and development policy. She holds a Ph.D in Economics from the University of Benin, Nigeria.

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