Cigarette prices in a complex cigarette tax system: empirical evidence from Indonesia

Tobacco industry pricing strategies during recent tax adjustments in Mexico: evidence from sales data

INTRODUCTION

Previous studies have identified pricing strategies that the tobacco industry employs to try to minimise the impact of tobacco taxation, but these studies are mostly about high-income countries. This research examines industry price responses to a recent cigarette tax increase in Mexico, including in the capsule cigarette segment that has expanded rapidly in Latin America.

METHODS

Data of cigarette prices and sales in Mexico between October 2018 and September 2021 licensed from NielsenIQ were used following a quasi-experimental design to analyse price changes after excise tax increases with fixed effect models by product. To explore heterogeneous responses, estimates were disaggregated by cigarette attributes such as presence of capsules and market segment. Differential shifting was also assessed.

RESULTS

Increasing the tobacco tax from 2011MX$0.35(≈US$0.02) to 2020 MX$0.4944(≈US$0.0283) in January 2020 was associated with an overall 8% cigarette price increase in real terms. However, some cigarette types, including premium to discount segments, exhibited price increases larger than the tax increase, which reduced the relative price of ultra-low-priced cigarettes. Instead of a single hike, prices were gradually raised throughout the first months of 2020 for all cigarette types. A combination of both pricing strategies was employed for capsule cigarettes. The 2021 smaller tax adjustment for annual inflation was fully passed onto consumer, maintaining real prices constant.

CONCLUSIONS

The industry's ability to raise prices more than the tax increase and manage these price increases smoothly suggests that there was room for larger tobacco tax increases in Mexico. Future developments on tobacco taxes could consider a fully specific tax structure or minimum taxes to mitigate the adverse effects of market segmentation and differential shifting.

Macroeconomic impact of tobacco taxation in Indonesia

BACKGROUND

A significant tobacco tax increase has long been advocated to reduce Indonesia's high smoking prevalence. However, implementing such a policy remains challenging due to the tobacco industry's argument that it would negatively impact the economy.

OBJECTIVE

This study aims to provide a comprehensive estimate of the net impact of tobacco taxation on Indonesia's economy.

METHOD

The impact of the tax hike on the economy is simulated through a change in cigarette demand and reallocation of household's budget and allocation government spending from additional tobacco tax revenue. Input-output analysis is employed to estimate the net effect of the tobacco tax rise on the total economic output, income and employment in Indonesia.

FINDING

Increasing the tobacco tax would generate a net positive impact on the economy as it would increase economic output, household income and employment. The positive impact is mainly driven by government spending from additional revenue from increased tobacco taxes. Spending tax revenue using the current structure of government spending has the potential to generate the optimal economic effect. Increasing tobacco tax by 45% from the 2019 tax level would increase economic output, household income and employment by Rp84.2 trillion, Rp24.1 trillion and 400.3 thousand jobs, respectively.

How has the tobacco industry passed tax changes through to consumers in 12 sub-Saharan African countries?

INTRODUCTION

Tobacco taxation is only effective in reducing consumption when it is translated into higher prices. This study aims to investigate to what extent the tobacco industry (TI) passes tax increases over to consumers by increasing the retail price of cigarettes in 12 sub-Saharan African (SSA) countries.

METHODS

African Cigarette Prices Project and WHO's Global Tobacco Epidemic Reports data were used to calculate the rate of tax pass-through by decomposing the retail price of cigarettes into tax and net prices between 2016 and 2020. Percentage change in net price was used to identify industry pricing behaviour, in both packs and single-stick sales. TI pricing strategies were examined by country, producer type, producers, and cigarette price segment.

RESULTS

There were mixed TI strategies, with taxes primarily overshifted (Botswana, Madagascar, Tanzania, Zimbabwe), undershifted (Ethiopia, Lesotho, Mozambique, Namibia, South Africa, Zambia) or a mix of both (Malawi, Nigeria). The detail varied between countries, over time, and between the different brands/segments offered. Patterns for single-stick sales were broadly similar to that of packs but with some differences observed in particular countries/years. Pricing strategies for the various transnational tobacco companies and domestic producers were similar but the changes in net price for the latter were larger. The country tax level/type and the size of tax change did not seem to be an obvious influence.

CONCLUSION

This paper provides an overview of TI pricing strategies in response to tax increases in SSA. Governments must monitor how the TI responds to tax changes to ensure that tax increases are effective in impacting price.

Impact of tobacco price and taxation on affordability and consumption of tobacco products in the South-East Asia Region: A systematic review

INTRODUCTION

The objective of the review was to study the impact of tobacco taxes or prices on affordability and/or consumption of tobacco products in WHO South-East Asia Region (SEAR) countries, overall and by socioeconomic status; and change in consumption of one tobacco product for a given change in price/tax on another tobacco product.

METHODS

The searches were made in five databases (Medline, Embase, Cinahl, EconLit, Tobacconomics) using keywords such as 'tobacco', 'tax', 'price', 'impact' with their synonyms. Additionally, the first 100 articles through google search and e-reports from targeted sources were also reviewed. Studies illustrating the impact of prices/taxes on consumption/affordability of tobacco products in SEAR, in English and with no limitation on year, were included in the review. After two steps of screening, data from 28 studies were extracted using a structured and pre-tested data extraction form.

RESULTS

Of the 28 studies, 12 studies reported an inverse association between price and consumption/affordability, while 11 studies reported no or positive association between price and consumption/affordability of tobacco products. Five studies had unclear interpretations. The majority of studies estimated that the less affluent group were more price responsive compared to the more affluent group. Some studies indicated increased consumption of one product in response to price rise of another product, although, the findings were inconsistent.

CONCLUSIONS

The findings of our review support the use of tobacco tax and price measures as effective tools to address the tobacco epidemic. Our findings, however, also emphasize the importance of increasing tobacco product taxes and prices sufficiently to outweigh the effects of income growth, in order for the measures to be effective in reducing the affordability and consumption of tobacco products.

Good intentions, unintended outcomes: Impact of social assistance on tobacco consumption in Indonesia

INTRODUCTION

Social assistance programs create an income effect that allows low-income groups to raise their consumption to improve their well-being. However, this may unintentionally induce an increase in their consumption of temptation goods, including tobacco. By analyzing five massive social assistance programs distributed by the government since 2007, we explore whether those programs may induce increased smoking intensity in Indonesia.

METHODS

This study is a quantitative study that applies a Tobit regression, Difference-in-Differences (DiD) regression, Difference regression, and two-sample t-test, using the 2017 Susenas (National Socioeconomic Survey) and the 2007 and 2014 Indonesia Family Life Survey. Estimations using sociodemographic, regional, and social assistance dummy variables are used to explore the impact of the programs on the intensity of cigarette consumption in Indonesia, simultaneously assessing the relationship between cigarette consumption and socioeconomic conditions.

RESULTS

Our estimations using Tobit regressions confirm that social assistance recipients consume 3.39 cigarettes per capita per week more than non-recipients. The DiD regressions on IFLS panel data show that social assistance programs significantly increase cigarette consumption by 2.8 cigarettes per capita per week. We also find that: 1) smokers have lower socioeconomic indicators than non-smokers in terms of nutrition and health and education expenditures, and 2) younger household members living with smokers have less educational attainment and higher average sick days.

CONCLUSIONS

There is reasonable evidence to support the hypothesis that social assistance programs in Indonesia have contributed to the greater intensity of tobacco consumption among the recipients. The findings call for policy reforms in social assistance programs to be warier with the eligibility conditions for social assistance recipients. Adding new conditions related to smoking behaviors might reduce the smoking intensity of those in low-income groups and, in the long run, might improve the effectiveness of social assistance programs in raising the socioeconomic welfare of the low-income population.

Why is tobacco control progress in Indonesia stalled? - a qualitative analysis of interviews with tobacco control experts

BACKGROUND

Indonesia shoulders a significant tobacco burden, with almost two million cases of tobacco-related illnesses and more than two hundred thousand tobacco-related deaths annually. Indonesian tobacco control is progressing but lags behind other countries. Our study evaluates factors that contribute to the slow progress of tobacco policy change in Indonesia from the perspective of tobacco control experts (TCEs).

METHOD

We conducted qualitative interviews with four international and ten national TCEs, who have been active in tobacco control for at least 5 years. Our interview guideline included questions on the current tobacco control situation in Indonesia and explored reasons why tobacco control is progressing so slowly. The interviews were conducted either in English or Bahasa Indonesia, recorded and then transcribed verbatim. We conducted a thematic analysis based on five core causal factors for policy adoption: institutions, networks, socio-economic factors, agendas and ideas.

RESULTS

The multistage delay of tobacco policy adoption is principally due to political structures and policy hierarchy, complex bureaucracy, unclear roles and responsibilities, and a high degree of corruption. The low bargaining position and lack of respect for the Ministry of Health also contributes. There are contrasting frames of tobacco as a strategic economic asset and tobacco control as a sovereignty threat. There is an imbalance of power and influence between well entrenched and resourced tobacco industry networks compared to relatively young and less established tobacco control networks. The policy agenda is likely influenced by the privileged position of tobacco in Indonesia as a socially acceptable product with high consumption. There are constraints on transferring ideas and evidence to successful policy adoption.

CONCLUSION

Tobacco companies have substantially influenced both policy decisions and public perceptions, signifying a power imbalance within the government system and broader networks. Acceding to and enforcing the World Health Organization- Framework Convention on Tobacco Control (WHO-FCTC) would enable the Indonesian government to shift the power imbalance towards public health stakeholders. Tobacco control advocates must enhance their network cohesion and embrace other community groups to improve engagement and communication with policymakers.