FRANCE / LATIN AMERICA / THE CARIBBEAN – Countries in Latin America and the Caribbean (LAC) could reduce the widespread consumption of tobacco and its cost to society by better design and administration of tobacco taxes, according to a new OECD report.
Tobacco Taxation in Latin America and the Caribbean finds that the social and economic costs of tobacco use across LAC countries significantly outweigh the revenue raised from tobacco taxes. Well-designed tobacco taxes are a cost-effective policy tool for counteracting the impact of tobacco consumption, and countries in LAC have significant scope to improve their design and administration.
“Taxes play a vital role in limiting the social and economic costs of smoking,” OECD secretary-general Mathias Cormann, said. “Governments should be sure to maintain, and where necessary strengthen, the stringency of tobacco taxation.”
While countries in LAC have gradually, albeit partially, aligned their tobacco tax policy with the World Health Organization (WHO) best practices, progress on tobacco excise tax reform has stagnated since 2012 and significant scope for improvement remains. The most common policy gaps include the lack of mechanisms to ensure that a minimum amount of tobacco excise tax is paid and that taxes are not applied consistently across different tobacco products, including new tobacco and nicotine products.
More than 350, 000 people across LAC countries died in 2021 as a result of tobacco use or second-hand smoke, and over 40 percent of respiratory cancers in the region were attributable to tobacco use (Global Burden of Disease Study, 2021). The smoking-attributable medical costs can reach up to 1.5 percent of GDP per year on average.
Tobacco use remains widespread with 12 percent of the population currently using tobacco in LAC. It is particularly high among men, whose tobacco use prevalence is three times that of women. In half of the LAC countries, tobacco use prevalence among people aged 13-15 is higher than amongst the adult population.
Cigarettes, which are the most widely consumed tobacco product in the region, are in general highly affordable and have become more so over time. Effective tax rates on cigarettes remain below the WHO’s recommended tax rate of at least 75 percent of the retail price of tobacco. In the short run, a tobacco tax increase will tend to have a positive impact on tobacco tax revenue, even if tobacco use would decrease, because smokers tend to adjust their smoking behaviour slowly over time. In the longer run, the reduction in health, economic and social costs would outweigh the drop in tax revenue, thereby resulting in a positive impact for the government budget and improved health outcomes.
To improve the effectiveness of tobacco tax policy and administration, the report recommends that LAC countries increase tobacco excise tax rates, seek to account for the strategic responses of the tobacco industry when designing tobacco tax policy, strengthen tobacco tax administration, introduce accompanying measures to tackle illicit tobacco trade, ensure that tobacco excise and income tax policies are coherent, and strengthen domestic and regional tobacco tax co-operation.
The report provides detailed information on tobacco taxation in 18 countries in Latin America and the Caribbean (Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru and Uruguay).
