How to Design and Enforce Tobacco Excises?

Introduction

Tobacco1 is for several good reasons more heavily taxed than other goods in many countries. From the early days of industrial production of cigarettes in the late nineteenth century until a clear link was estab- lished between tobacco and various health conditions in the middle of the twentieth century, tobacco was fairly lightly taxed. All this changed with the pub- lication of two governmental reports, in the United Kingdom (Royal College of Physicians, 1962) and the United States (United States Department of Health, Education and Welfare, 1964), in the early 1960s (Yach and Wipfli, 2006). From that point, the wider public came to accept the rationale for tougher tobacco products regulation and, eventually, for higher taxes.

Tobacco-related revenue is generally collected through excise taxes—that is, taxes on the use of a particular product. There are, however, significant variations in both the level and composition of tobacco excises across countries. In the recent past, several countries, such as Canada, some in northern Europe (for example, Sweden, Denmark, Norway), and many Pacific and Caribbean islands, have primarily used specific taxes (a fixed monetary value per physical unit of the excised good), while others, such as China and other East Asian countries, core and southern Euro- pean countries, and many South American and African ones, relied more heavily on ad valorem taxation (a percentage of the value of the excised good).2 Many countries use both, but in differing proportions, and with different methods.