Potential impact of eliminating illicit trade in cigarettes: a demand-side perspective

The effect of tobacco tax increase on price-minimizing tobacco purchasing behaviours: A systematic review and meta-analysis

BACKGROUND AND AIMS

Tobacco product excise taxes are a cost-effective method for reducing tobacco consumption, but industry pricing and marketing strategies encourage consumers to engage in price-minimizing behaviours (PMBs). We investigated the relationship between tobacco tax increases and PMBs, measuring whether PMBs intensify following tax increases, whether low-income consumers with higher nicotine dependence are more likely to engage in PMBs and whether PMBs are negatively related to smoking cessation.

METHOD

This was a systematic review with meta-analysis of cross-sectional and longitudinal studies from seven databases up to March 2023, using studies that reported any product- and purchasing-related smoking behaviours post-tobacco tax increase in a general representative population. Sixty-eight studies were quality-assessed using the Newcastle-Ottawa scale. All studies were narratively synthesized, with five studies involving 13 068-26 575 participants providing data for pooled analyses on PMBs [purchasing lower-priced brands, roll-your-own (RYO) tobacco and cartons] pre- and post-tax increases using a random effects meta-analytical model.

RESULTS

Fifty-seven studies reported on legal PMBs, and 17 studies reported illicit cigarette purchasing. Meta-analysis showed that consecutive tax increases were positively associated with purchasing RYO [odds ratio (OR) = 1.60, 95% confidence interval (CI) = 1.04-2.46], especially in higher tobacco taxing environments, with substantial heterogeneity (I2 = 96%). Lower income and higher nicotine dependence were associated with purchasing lower-priced brands and RYO, whereas higher income and nicotine dependence were associated with purchasing cartons, large-sized packs and cross-border sales. Less evidence associated illicit tobacco purchases with tax increases or PMBs with smoking cessation.

CONCLUSIONS

Tobacco purchasers' PMBs vary widely by state, country and time-period within countries. Both legal and illegal PMBs, potentially influenced by industry pricing tactics, may exacerbate health inequalities and dilute the public health benefits of tobacco tax increases.

A Systematic Investigation of Tobacco Industry Sourced Data Relating to Illicit Tobacco Trade Featured in Pakistan's Media Coverage (2015-2020)

INTRODUCTION

Previous evidence suggests the tobacco industry uses media to disseminate misleading narratives relating to illicit tobacco trade (ITT) as part of efforts to influence policy outcomes. Such evidence is largely high-income countries (HIC) focused, resulting in a literature gap for low- and middle-income countries (LMICs). Pakistan and its annual budget cycle are used as a case study for addressing this gap.

AIMS AND METHODS

Electronic English-language articles from newspapers in Pakistan (328) were sourced from LexisNexis and a sub-sample of Urdu-language electronic articles (12) were identified through internet searches. The articles were published between 2015 and 2020 and included claims/estimates relating to ITT, which were coded to identify cited data sources. Changes in media coverage before and after Pakistan's annual budget announcements were explored via Wilcoxon signed rank and Poisson regression tests.

RESULTS

Of the 357 claims/estimates analyzed, 66 (20%) were industry-funded. The most prevalent sources were national government bodies (36.6%) and tobacco companies or their representatives (15.1%). Wilcoxon signed-rank and Poisson regression tests on the frequency of English-language articles both created a p-value of < .05 for the frequency of relevant articles between the months of April and May, compared to the other months, indicating statistical significance.

CONCLUSIONS

There was a statistically significant increase in the number of English-language articles featuring claims/estimates relating to Pakistan's ITT in the months leading up to the annual budget each year. The government should consider measures to improve transparency standards within media coverage and promote factcheck journalism to safeguard against industry tactics to manipulate public discourses.

IMPLICATIONS

This paper is, to the best of our knowledge, the largest exploration of the use of data sourced from the tobacco industry within a country's media that has been undertaken to date, utilizing a team of seven coders across the United Kingdom and Pakistan. Our findings reveal weaknesses within media coverage of ITT in Pakistan, both in English and Urdu language publications. We encourage the government to consider new standards to enhance transparency and promote factcheck journalism within media coverage in the country.

Global rapid review of interventions to tackle the harms of illicit tobacco

OBJECTIVE

This review aimed to assess interventions designed to reduce harm from illicit tobacco (IT). We evaluated health outcomes, cost-effectiveness, the advantages and disadvantages of interventions, and contextual factors affecting implementation.

DATA SOURCES

We searched MEDLINE and EMBASE databases from January 2002 to June 2024, the grey literature and undertook backward and forward citation searches of included studies without geographical restrictions.

STUDY SELECTION

Eligible study types included non-randomised trials, interrupted time series, before-after studies, economic simulations and mixed-methods studies. Case studies providing outcome data linked to specific interventions were also included. Studies were screened by multiple reviewers for eligibility.

DATA EXTRACTION

Data was extracted on geographical location and dates of interventions, descriptions of the interventions, contexts and outcome data relevant to review objectives which were checked by a second reviewer. Quality assessment was conducted using the Joanna Briggs Institute (JBI) critical appraisal tools appropriate for each study design.

DATA SYNTHESIS

Five studies and 16 case studies were included. These reported on a range of interventions (including track-and-trace systems, anti-counterfeit measures and communications campaigns) and outcomes (including tax revenue and population attitudes toward IT). There was some evidence for the effectiveness of track-and-trace systems. Case studies, predominantly on national-level interventions, reported decreases in IT market share and increases in tax revenue suggesting potential benefits of multicomponent strategies.

CONCLUSIONS

There is promising limited evidence for interventions to tackle IT but they are seldom systematically evaluated. Comprehensive, independent evaluations are required to support policymaking and avoid tobacco industry influence in IT research.

PROSPERO REGISTRATION NUMBER

CRD42023452732.

Extent of illicit cigarette sales in Nepal: findings from a retail survey

INTRODUCTION

Increasing the tax on cigarettes is widely considered the most effective method to reduce its consumption. However, Nepal has a low cigarette tax as policymakers in Nepal are concerned about illicit trade of cigarettes if taxes are increased.

METHODS

The study employed a retail survey approach used in India suitable for countries with prevalent loose cigarette sales, with improved methodology. In 2021, empty cigarette packs generated in a day's loose cigarette sales were collected directly from cigarette retailers from 23 primary sampling units covering rural/urban, geographic divisions, border/non-border to India and tobacco factory locations. The central points of each primary sampling unit were identified, and retailers were selected for the survey. A cigarette pack was classified as illicit if it had at least one of the following attributes: (a) no authentic excise duty sticker, (b) no graphic health warning, (c) no mention of 'maximum retail price/MRP' and (d) no production date, name, address and trademark.

FINDINGS

We collected 4307 empty cigarette packs from 1204 retailers and 0.33% of them were classified as illicit. The estimates varied across location with the highest prevalence of illicit packs in Kathmandu (1.25%). All the illicit cigarettes were imported and were high-priced brands (>90%), mostly found in urban areas and not bordering India.

CONCLUSION

Our estimate of the illicit cigarette market share of 0.33% suggests that the industry's statement of 25% is grossly overstated.

The Extent of Illicit Cigarette Sales in Five Rural Districts of Pakistan: A Cross-sectional Study

INTRODUCTION

The Illicit Tobacco Trade (ITT) subverts tobacco control efforts. Cigarette packs sold without legal health warnings undermine efforts to warn the public about the dangers of tobacco. Furthermore, cigarettes sold below minimum retail prices are indicative of tax evasion leading to revenue loss and budgetary deficits in high tobacco-burden economies. The extent of the ITT in rural areas of such countries might differ from urban. We estimated the extent of illicit cigarette sales in selected rural areas of Pakistan.

AIMS AND METHODS

We analyzed cigarette packs collected from 85 villages in Pakistan as part of a cross-sectional consumer survey of 2550 rural households. We classified cigarette packs as noncompliant if these were missing: A text health warning, pictorial health warning (PHW), underage sale prohibition warning, retail price, or manufacturer details. To measure the extent of tax evasion, we estimated the proportion of packs purchased below the legal minimum retail price.

RESULTS

Only 35% (429/1228) of rural smokers were able to show their cigarette packs. Out of these, 89% (382/429) of packs were noncompliant with the cigarette packaging and labeling laws. In rural areas, 83% (357/429) of packs did not have PHW and 33.8% (145/429) did not have printed retail prices. Among all packs, 41% (177/429) were purchased below the minimum retail price of 63 Pakistani Rupees and hence highly likely to have evaded taxes.

CONCLUSIONS

We found a very high previously unreported proportion of noncompliant cigarette packs in selected rural areas of Pakistan indicating weaker implementation of tobacco control laws in rural areas.

IMPLICATIONS

This paper presents previously unreported estimates of the share of illicit cigarette sales in rural areas of Pakistan. Most packs (89%) in our sample were noncompliant with the packaging and labeling regulations and a significant proportion (41%) were purchased below the minimum price. The extent of illicit tobacco was found to be far greater in rural than in urban areas of Pakistan. Taking advantage of poor law enforcement, the tobacco industry may be complicit in flooding the rural markets with illegal and cheap cigarettes. Given this disparity, law enforcement authorities must focus on rural areas.

The cigarette market in Brazil: new evidence on illicit practices from the 2019 National Health Survey

OBJECTIVE

To explore new evidence on illicit practices, such as selling legal brands below the minimum legal price (MLP), and smugglers selling illicit brands at or above the MLP.

METHODS

For the first time in Brazil, self-reported information on cigarette brand name and price paid per pack in smokers' last purchase from a nationally representative survey conducted in 2019 was used to distinguish the illicit and the legal markets. We estimated the proportion of illicit cigarette consumption, using the combination of brand and price.

RESULTS

The proportion of smuggled illicit cigarette consumption based on brands not approved on the Brazilian market was estimated at 38.6% (95% CI: 35.8% to 41.5%). When we added legal brands not paying taxes, it increased to 47.1% (95% CI: 44.2% to 49.9%). Around 25% of illicit brand cigarettes were sold at or above MLP.

CONCLUSIONS

In Brazil, since 2017 there is a lack of adjustment in tobacco taxes and the MLP for inflation and income growth. The increase in cigarette affordability and the presence on the market of a segment of 'higher-priced' illicit brands suggest patterns of illicit brand loyalty and/or perceived 'brand quality' among smokers of illicit cigarettes. The evidence also shows that a sizeable proportion of legal brand cigarettes were sold below the MLP. This study offers insight into what happened in circumstances in which a government failed to keep current with tax policies and the monitoring of domestic manufacturing. Brazil has been a world leader in the monitoring of the tobacco epidemic, and this study also offers an innovative use of data that an increasing number of countries are collecting.

The Compassion Club: A New Proposal for Transformation of Tobacco Retail

INTRODUCTION

One major assumption in the current tobacco industry is the distribution of tobacco products through a system of commercial for-profit retail. However, other models of distribution that do not rely on this mechanism exist.

AIMS AND METHODS

In this review, we examine the potential of a nonprofit Compassion Club model and discuss how the current existence of independent vape stores might provide the infrastructure to allow the transformation of tobacco distribution.

RESULTS

Compassion Clubs exist internationally with different levels of regulation and legality and have generally been focused on the distribution of illegal drugs or hard-to-access pharmaceuticals. They provide access to drugs for existing users, limit access by novices, limit negative impacts from illicit markets, and provide social support focused on reducing harms associated with drug use.

CONCLUSIONS

With decreasing prevalence of tobacco use in many countries and growing interest in a tobacco endgame, a Compassion Club model of distribution could help transition tobacco away from the model of commercial widely available distribution. More work is needed to develop the regulations and policies that might guide a compassion club model.

IMPLICATIONS

Compassion clubs are a model for the distribution of psychoactive substances that are focused on harm reduction and social support rather than profit. There has been little discussion about the possibility that this promising model could be applied to help transform the tobacco industry. Many independent vape stores already demonstrate aspects of the compassion club model that could be used to support a transition.

[The sale of single cigarettes in Brazil from 2008 to 2019: one more cause of concern?]

In Brazil, the sale of cigarettes is only allowed in closed packages with 20 units. The evolution over time of the proportion of adult smokers who purchased single manufactured cigarettes in their last purchase was evaluated. Data from the Global Adult Tobacco Survey conducted in 2008 and the Brazilian National Health Survey conducted in 2013 and 2019 were used. A generalized linear model was used to calculate the differences in the proportion of single cigarette purchases between the survey years, adjusted for sociodemographic and smoking behavior variables. Considering 2013 as the reference year, the relative differences in the proportions were, respectively, -15.3% (adjusted p-value ≤ 0.05) when compared to 2008, and +13.3 (adjusted p-value = 0.08) when compared to 2019. Approximately 20% of young adult smokers reported buying single cigarettes in 2019 and the difference in the proportion of single cigarette purchases between individuals aged 18 to 24 and those older likely increased from 2013 to 2019 (adjusted interaction p-value = 0.08). There are reasons for concern, as the strengthening of tax policy from 2008 to 2013 was accompanied by an increase in the proportion of purchases of single cigarettes. Despite the decrease in the real price of cigarette packs from 2017, a context of low effectiveness of implementation of other anti-smoking measures likely accentuated the difference in the proportion of purchase of single cigarettes between young people and adults. The continued presence of single cigarettes as a mode of acquisition contributes to economically vulnerable population subgroups becoming and/or remaining dependent on smoking behavior.

Taxation of tobacco, alcohol, and sugar-sweetened beverages: reviewing the evidence and dispelling the myths

The article reviews the large body of evidence on how taxation affects the consumption of tobacco, alcohol, and sugar-sweetened beverages (SSB). There is abundant evidence that demand for tobacco, alcohol, and SSB is price-responsive and that tax changes are quickly passed on to consumers. This suggests that taxes can be highly effective in changing consumption and reducing the burden of diseases associated with consuming these products. Tobacco, alcohol, and SSB industries oppose taxation on similar grounds, mostly on the regressivity of taxes since regressive taxes take a larger percentage of income from low income earners than from middle and high income earners; but also on the effects taxes might have on employment and economic activity; and, in the case of tobacco, the effects taxation has on illicit trade.Contrary to industry arguments, evidence shows that taxation may have short-term negative financial consequences for low-income households. However, medium and long-term financial benefits from reduced healthcare costs, better health, and welfare largely compensate for such consequences. Moreover, taxation does not negatively affect aggregate economic activity or employment, as consumers switch demand to other products that generate employment and may compensate for any employment loss in taxed sectors. Evidence also shows the revenues generated are generally spent on labour-intensive services. In the case of illicit trade in tobacco, evidence shows that illicit trade has not increased globally (rather the opposite) despite increases in tobacco taxes. Profit-maximising smugglers increase illicit cigarette prices along with the increases in licit cigarette prices. This implies that even when increased taxes divert some demand to the illicit market, they push prices up in the illicit market, discouraging consumption.

Illicit cigarette market in Georgia: potential impacts on smoking prevalence and tax revenues

OBJECTIVES

This study aims to examine the impact of taxation measures implemented between 2017 and 2019 on the illicit cigarette market in Georgia and to assess the potential effects of its full elimination on smoking rates and tax revenues.

STUDY DESIGN

This was a cross-sectional and observational study.

METHODS

The study uses the gap analysis method to estimate the size of the illicit market by comparing self-reported cigarette consumption with tax-paid cigarette sales. Potential changes in cigarette consumption are calculated using estimates of price demand elasticity and the price difference between licit and illicit cigarettes. The applicable excise tax is then applied to the estimated change in licit cigarette consumption to determine the potential change in tax revenues.

RESULTS

In 2020, illicit cigarettes accounted for 6.4% of the market, which decreased to 0.6% in 2021. Eliminating the illicit cigarette market could potentially reduce the number of smokers by 0.5% in 2020 and 0.1% in 2021. It could also lead to a 2.8% increase in excise tax revenues in 2020 and a 0.2% increase in 2021. The study highlights a notable shift in consumer behavior since 2019 toward smoking roll-your-own (RYO) cigarettes.

CONCLUSIONS

Tax increases did not have a significant impact on the size of the illicit market in Georgia. The shift in consumer preference toward RYO cigarettes may explain why the illicit cigarette market did not expand after the tax hikes. However, this shift diminishes the effectiveness of taxation policies in reducing smoking rates and leads to a decline in excise tax collection.

Spatio-temporal distribution of cigarette butt contamination in urban beaches with varying levels of use

This study assessed the extent of cigarette butt contamination on two urban beaches in Recife-PE (Pernambuco State, Brazil) with varying levels of use. The study considered degradation levels and evaluated whether the brands varied by time, space, and beaches use. Ten transects (1.5 m wide) and spaced 10 m apart, were delimited on the beaches investigated. Twelve collections were made between May 2021 and January 2022, and the collected cigarette butts were evaluated based on degradation level, mass, size, and brand. In total, 10,275 cigarette butts were collected on both beaches, with P1 accounting for 96.91% of the found cigarette butts. The density of cigarette butts on the beaches was directly proportional to the level of use, with 8.85 butts/m2 in P1 and 1.05 butts/m2 in P2. Eighteen brands were identified, with brand (A) being the most popular regardless of the area. Significant differences (p ≤ 0.05) were found when evaluating the amount of butts/m2; Sundays with high precipitation presented reduced values of butts; more occupied areas presented transects with higher amounts; abundance in the summer; morphometry with higher values recorded in newly discarded butts; predominance of more degraded butts and brand diversity. Despite the difference in the number of butts/m2 between the areas, it was possible to identify that their abundance is very expressive, and that the monitored beaches present a high exposure to the contaminant.

Appraisal of Kenya's excisable goods management system using interrupted time series analysis: A case of cigarettes and cigars excise tax revenue

The government of Kenya introduced the Excisable Goods Management System (EGMS) in November 2013, which is a form of Track and Trace Systems (TTSs) for excisable goods, including cigarettes and cigars. This study appraised the EGMS with a focus on its impact on cigarette and cigars excise tax revenue and possibly control of related illicit trade in Kenya. Illicit trade in cigarettes and cigars pose significant health risks owing to increased access to tobacco products, besides contributing to loss of government revenues. The study utilised an Interrupted Time Series Analysis (ITSA) to assess impacts of the EGMS on monthly cigarette and cigars real excise tax revenue over the period April 2013 to March 2017. The results show that the difference between the pre-intervention and post-intervention slopes of the real excise tax revenue was positive and statistically significant, suggesting a change in excise tax revenue trends. The hypothesis of an immediate level change in excise tax revenue was however not supported, possibly due to the initial implementation challenges that dampened a 'jump' in real excise tax revenue. These findings suggest that TTSs need to be complemented by sustained efforts to achieve maximum compliance levels and impact in both the short term and the long term.

Effects of the Brazilian tax reform plans on the tobacco market

BACKGROUND

There has been an intense debate in the Brazilian National Congress on how to reform the country's tax system on consumption. This paper investigates the effects of the tax reform under the Constitutional Amendment Bill 45/2019 on cigarette prices, consumption and tax collection. The reform will introduce a new goods and services tax (GST) and tobacco excise tax (TET).

METHODS

The micro data from the National Household Sample Survey (PNAD) of 2008 and the National Health Survey (PNS) of 2013 are inputs in the simulation in order to determine the smoking behaviour and consumer responses to price changes as accurately as possible across the different Brazilian states. We developed three scenarios for the tobacco tax reform and their effects on cigarette prices, smoking behaviour and tax collection. We also estimate the size of the illicit cigarette market by Brazilian state and simulate the impacts of a 10% reduction in its market share.

FINDINGS

Overall, we found that a GST of 27% and a TET of either 51%, 56% or specific 3.89 BRL per pack would lead to considerably higher cigarette prices, lower cigarette consumption and, above all, an increase of cigarette tax collection between 8% and 27% depending on the state. A discretionary 10% reduction in the illicit market would add about 8.5% of extra tax collection per year to the country.

CONCLUSIONS

The simulated scenarios demonstrated that, to keep the cigarette prices at least at the same level as those in the current tax scheme, TET should be no less than 77.85% of the retail price. This means that any politically feasible tax reform should result in higher cigarette prices and a reduction in cigarette consumption. Considering the nationwide effect, in all scenarios, the total increase in tobacco tax revenue is around 8.5% or 1.5 billion BRL per year. This extra revenue is highly desirable in an environment of chronic fiscal imbalance and the COVID-19 pandemic crisis.

Tobacco tax evasion in Western Balkan countries: tax evasion prevalence and evasion determinants

BACKGROUND AND OBJECTIVE

Tobacco tax evasion undermines the goal of tobacco taxes as a tobacco control measure to make tobacco products less affordable, increases the health risks for those who smoke and decreases the government revenue. This paper analyses the tobacco tax evasion in six Western Balkan (WB) countries: Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia. The aim of this research is to estimate the size of the illicit market and identify the main determinants of tax evasion activities in the Southeastern European region.

DATA AND METHODS

Data from 2019 Survey on Tobacco Consumption in Southeastern Europe (STC-SEE) are used. STC-SEE provides uniquely comparable nationally representative data on smoking behaviour for adult (18-85 years old) population for each country. Tax evasion is defined on the basis of available information on tax stamps, health warnings, price and the place of purchase, in accordance with the previous research on tax evasion. In order to estimate the determinants of illicit purchases we use binary choice model of tax evasion.

RESULTS

The study finds that 20.4% of all current smokers in WB countries evade taxes on tobacco products, with evasion being much more frequent for hand-rolled (HR) tobacco (86.7%) than for the manufactured cigarettes (MC) (8.6%). While HR is predominantly illicit in all six countries, MC evasion varies significantly, with evasion being significantly higher in Montenegro and Bosnia and Herzegovina. Results further suggest that tax evasion is higher in the statistical regions where institutional capacities to tackle illicit trade are lower, in municipalities bordering countries with high MC evasion, as well as among smokers with low income, women and elderly. We also provide evidence that higher tobacco taxes and prices do not increase illicit consumption.

CONCLUSION

The findings from the research suggest that in order to decrease tax evasion, governments should put additional effort to strengthen institutional capacities to tackle illicit tobacco markets. Furthermore, improving regional coordination in development and implementation of tobacco control policies, including the prevention of illicit market, is essential in lowering evasion in all WB countries. Finally, WB countries should regulate and enforce excise tax stamp requirements on the HR tobacco market to a much higher degree.

New evidence of illicit cigarette consumption and government revenue loss in Indonesia

INTRODUCTION

Illicit cigarettes because of their affordability could increase smoking prevalence, especially among young people. They also cause a large revenue loss for the government. This study aims to estimate illicit cigarette consumption and government revenue loss in Indonesia, a country with a very high smoking prevalence, especially among males.

METHODS

We estimated illicit cigarette trade in terms of volume and revenue loss. Illicit trade was estimated as the discrepancy between legal cigarette sales and domestic consumption recorded by national representative surveys. Data sources included Basic Health Research Survey, Global Adult Tobacco Survey, National Socioeconomic Survey, and data from Ministry of Finance.

RESULTS

We found that illicit cigarette consumption fluctuated from 19 billion sticks in 2007 to 14 billion sticks in 2013, and sharply increased to 59 billion sticks in 2018. Relative to cigarette consumption, illicit cigarettes were the lowest at 5% in 2013 and highest at 19% of consumption in 2018 (assuming 0% underreporting). The estimated government revenue loss ranged from IDR 24.2 to 42.0 trillion (US$ 1668 to 2897 million), which corresponds to 15.8% to 27.5% of cigarette excise revenue in 2018.

CONCLUSIONS

In Indonesia, illicit cigarette consumption was found to be high and increasing, which contributed to a large government revenue loss (almost onethird of tobacco excise tax revenue). To reduce illegal cigarette production and smuggling, the government should increase resources to enforce the regulation on the excise tax system including stronger penalties, especially related to illicit cigarette production.