Monday, April 19, 2021

Concern over taxation fuelling illicit tobacco smuggling in Southern Africa

The two-and-half days conference on the economics of Tobacco control that transpired in Botswana over the last week grappled with dicey issues of agreeing on whether measures to control tobacco that have been used in other countries will work in southern Africa as much as they have worked elsewhere in the world.

On the one hand is taxation and on the other is smuggling. What came out clearly is that as long as the taxation is high, smuggling will find fertile ground in southern Africa, which left the matter inconclusive as to how countries should impose taxation at the risk of smuggling. On one end some countries such as Malawi and Zimbabwe have increasingly found tobacco to be one of the most paying crop products than the conventional crops, such as maize, thereby motivating its citizens to grow the crop.

The World Bank, which was one of the sponsors of the conference, advocates for the diversification in alternative crops to move away from tobacco dependence. The World Bank uses the World Health Organization’s Framework Convention on Tobacco Control (FCTC), to which 43 African countries have signed and endorsed, are the most simple and effective tools for decreasing the harmful effects of tobacco.

The World Bank dictates that: “Country experiences provide the evidence and demonstrate that these policies can work in any country, in any context, including countries with traditionally very high rates of tobacco consumption.”

The World Bank argues that cigarettes are becoming increasingly affordable as incomes rise in several African countries due to the rapid economic growth of recent years. The Bank says higher prices discourage youth from initiating cigarette smoking and encourage current cigarette smokers to quit.

“Currently prices for tobacco products in many countries are so low that smokers and potential smokers have no economic reason not to purchase them. Cigarettes are so cheap, cheaper than many household items that they pose no serious financial hardship to even low-income consumers,” the World Bank argues.

The WB therefore recommends adopting tax policies of countries with comprehensive tobacco control policies where tobacco consumption has fallen. Such countries have tobacco taxes between two-thirds to four-fifths of retail price.

“Countries in this region may need to consider a different rate to bring the current, low prices high enough to have a real impact on smoking rates,” the WB advocates.

However, the arguments raised against tax increases is the threat to of illicit trade of tobacco products to which experts and the World Bank say tobacco taxes are not the primary reason for cigarette smuggling and cigarette tax avoidance that has bedevilled the region.

Experts said despite high cigarette prices and some of the highest cigarette taxes, smuggling is almost non-existent in Scandinavian countries. Many countries such as Norway and Sweden have significantly increased tobacco prices without experiencing changes in smuggling or illicit production.

Example of the United Kingdom shows that as cigarette prices continue to rise. Smoking prevalence has fallen markedly from 45% of the population in 1974 to around 21% in 2008.

The health issue has also taken precedence with experts arguing that increasing the price of tobacco through tax increases will decrease its consumption, save lives and raise tax revenue for the countries.

“The benefits of higher tobacco taxes in terms of health and revenue have been significant even in the countries where smuggling exists. Higher taxes reduce consumption and increase government revenue, even in the presence of cigarette smuggling,” the World Bank concluded at the end of the conference.

RELATED STORIES

Read this week's paper