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Why a higher tax on cigarettes bears more gains than protecting local cigarette manufacturers?

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In 2017 parliament of Uganda amended the excise duty Act no. 11 of 2014. The Excise duty (Amendment) no. 11 of 2017 in section 2 imposes different excise rates on locally and foreign made cigarettes (soft cap and Hinge lid).

This amendment is a matter of contention in the East African Court of Justice that slapped an injunction on Uganda (Revenue Authority) on the 25th of January 2018 to stop forthwith collecting billed excise duty on British American Tobacco (U) LTD that shifted operations to Kenya.

While at Hotel Piato on the 7th of February 2018 in a CSO and members of School management committees of Schools in Kampala organised by the Uganda national Health Consumers Organisation, Hon. Isaac Mulindwa Soozi, the Lugazi Municipality Member of parliament and member of the finance committee of parliament, said that they (MPs) imposed higher excise duties on Foreign manufacturers to protect the local cigarette manufacturers.

Hon. Andrew Kaluya member of parliamentfor Kigulu County South,Iganga District, disagreed with the notion of protecting any cigarette manufactures because they both manufacture products that need strong controls among which banning the products from Uganda and availing alternative crops to farmers makes the most feasible argument. I with great pleasure acknowledge that Uganda removed Tobacco from its priority of Crops.

It must be recalled that section 23 (a) of the Tobacco Control Act no.22 of 2015, prohibits persons that contribute to or may contribute to the formulation….of public health policies on tobacco control from providing any incentive, benefits or privileges or preferential tax exemptions to the tobacco industry.

Incidentally, Tobacco manufacturers agree that tobacco use affects the lungs, causes heart diseases and kill its consumers as prescribed on their packs. A National NCD risk factor survey conducted in 2014 shows that one in every four adults in Uganda suffers from a Non-Communicable Disease.

And yet the Centre for Tobacco Control Africa (CTCA) in 2017 found that, the total health cost of tobacco use including the direct cost of treatment and the indirect costs of loss of income and productivity from death and disability in Uganda is UGX 328.82 billion, which is equivalent to US$126.48 million.

Expensive cigarettes translate to health gains

When taxes raise cigarettes prices, the poor get more health benefits than the rich. The relationship between price and income is very important. When prices increase faster than salaries, people must earn more to afford their cigarettes, which decreases cigarette consumption and increases the rate of quitting.

WHO calculates that if all countries increase taxes on cigarette packs by 50% there would be 49 million fewer smokers and this would avert 11 million deaths from smoking based on unpublished WHO simulations using the 2012 data).

The benefits of cessation are many and occur for a number of serious diseases soon after quitting. Only one year after quitting smoking, the risk of coronary heart diseases is about half that of a smoker. The stroke risk is reduced to that of non- smokers 5 to 15 years after quitting. After10 years of cessation, the risk of lung cancer fails to about half that of a smoker, and there is a decreased risk of cancer of the mouth, throat, oesophagus, bladder, cervix and pancreas according to WHO.

France, for example, increased its taxes substantially and regularly between the early 1990s and 2005, tripling its inflation-adjusted cigarette prices. This was followed by a reduction in sales by more than 50%. The health impact of this dramatic reduction in consumption was seen just a few years later with a reduction in lung cancer death rates for young men. Death rates went down by 50% during the same period. After a period of unchanged tax rates between 2005 and 2009, France has started to regularly increase tobacco taxes since 2010.

 

Raising taxes on tobacco improves economies for Government

In addition to reducing tobacco use and the associated health burden, tax increases generate substantial additional revenues to governments. Tax increases are a win-win situation because they are good for both public health and government revenues. Government revenues raised in this way can be used for health and other public benefit.

In Egypt, the government substantially increased the tobacco tax in 2010. The tax per pack for the most popular brand of cigarettes increased by 46% from 2.95 Egyptian pounds (EGP) to 4.32 EGP. This reduced sales by 14% in only two years. The impact on revenues was colossal, increasing by 151%, from 7 billion EGP to 17.6 EGP between 2010 and 2012.

Simple tax systems are

A number of countries around the world impose complex systems of tobacco excise, which are difficult to administer and subject to loopholes. The tobacco industry takes advantage of these loopholes to avoid paying the full amount of taxes. The resulting loss of revenues for the government and the difficulty to translate into price increases and reduced affordability for consumers makes these taxes and tax increases ineffective.

This reduced the tax tiers from four to two in 2013 and will bring them down to a single uniform rate in 2017. The reform also removed tax obligations which favoured one company over another. In addition, a provision was introduced to have automatic annual increases in the tax until 2017, with more rapid tax increases on lower priced brands.

Since implementing the reform in 2013, the Government reports that tobacco prices have gone up, sales have gone down and revenues have increased substantially.

In the African region, Gambia changed the base for its excise on cigarettes from weight to volume in 2012. Evidence shows that basing taxes on weight of tobacco encourages the industry to produce lighter but not less harmful cigarettes to pay less taxes.

In 2013, Gambia also raised the excise on all tobacco products to the same rate. This has the benefit of discouraging consumers from switching to a cheaper product when taxes are increased. Governments around the world tend to impose higher taxes on cigarettes than on other tobacco products, leading to price differences and encouraging substitution from higher priced products (usually cigarettes) to cheaper tobacco products such as water pipe tobacco or roll-your-own cigarettes. Taxing all products similarly leads to a harmonization of prices and reduces incentives for substitution.

Cheap cigarettes obtaining on the Ugandan market are a result of our weak tax law that makes tax administration difficult and thus making the routine tax imposing every financial year a nuisance to quitting and generating revenue so as to case a health dividend to cut health expenditure relations with tobacco caused diseases.

Talibita Moses, Is a tobacco control Activist working with Uganda National Health Consumers Organisation

mtalibita@unhco.or.ug

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