Tobacco Tax Simulation Model

Taxation is known to be the most cost-effective tobacco control measure available to
governments throughout the world. Higher tobacco taxes are also referred to as ‘win-win’ policies
because they generate extra government revenue while at the same time reduce long-term
tobacco consumption. Many health professionals have therefore been advocating for higher
levels of tobacco taxation on public health grounds alone, while macro-economists have begun
estimating the positive impact of higher tobacco taxes on government revenues, fiscal space and
financial sustainability.
The major concern of Ministry of Finance (MoF) officials when designing and implementing
changes to the tobacco tax system is to generate sustainably higher revenues. Other concerns
such as illicit trade, domestic employment, the regressivity of tax rates, and public health all play
a role to some extent. Generally speaking, public health concerns should be accorded a higher
priority in many countries, especially as higher tax rates are consistent with the primary revenue
generation objective.
Many high income countries and nearly all middle and low income countries still have the
opportunity to substantially increase their tax revenues from tobacco products. This is because
tax rates on tobacco products in these countries tend to be quite low to begin with, and consumer
demand for tobacco products is relatively price inelastic – even in lower income countries. Strong
tax administration is the key to designing, implementing and monitoring more effective tobacco
tax systems, and this often requires the administrations to build up their level of technical and
analytical capacity.
WHO has been working collaboratively with MoF colleagues in many countries to improve the
efficiency and effectiveness of their tobacco tax systems and examining the means of generating
sustainably higher revenues. As noted in the WHO Technical Manual on Tobacco Tax
Administration1
, many countries have overly complicated tax systems for tobacco products that
are prone to tax avoidance by manufacturers. Consequently, the actual revenue impact of a given
tax policy change will be less than expected.

To read the full publication please click the download link.

WHO