Southeast Asia Initiative on Tobacco Tax (SITT) of theSoutheast Asia Tobacco Control Alliance (SEATCA)

Tobacco Taxes and Pricesin ASEAN : an OverviewMay 2014

Tobacco Taxes and Prices in ASEAN : an Overview May 20142

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Regional Tobacco tax comparisons and trends in ASEAN

1. Tobacco ConsumptionTobacco consumption is increasing in Asia as transnational tobacco companies continue their aggressive expansion into the region, particularly targeting their marketing and production activities in the emerging markets of ASEAN’s developing countries.

Smoking prevalence rates among men remain generally higher than those of women, with Indonesia facing very high prevalence rates (above 65%) among their male population, while Cambodia, Malaysia, Philippines, and Vietnam have male smoking rates nearing 50%. The female smoking rates is 8-9% in Lao PDR and Philippines. It should be pointed out that in addition to the health burden from smoking, Myanmar, Cambodia, and Lao PDR also face significant smokeless tobacco use.

These are alarming statistics, given the globally recognized harms of tobacco on health, society, the environment, and national economies.

Figure 1: Current adult smoking prevalence in ASEAN countries (figures in percent)1

0 % 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 % 100 %

TotalFemalesMales

Vietnam(2010) 23.8

1.447.4

Thailand(2014) 19.9

2.139.0

Singapore(2013) 13.3

3.823.1

Philippines(2010) 28.3

9.047.7

Myanmar(2007) 22.0

7.844.8

Malaysia(2011) 23.1

1.043.9

Lao PDR(2012) 25.5

8.443.0

Indonesia(2013) 36.3

2.164.9

Cambodia(2011) 19.5

3.439.1

Brunei(2009-2011) 18.0

3.934.9

Note: Years in which prevalence surveys were conducted differ from country to country

2. Cigarette PriceAs elsewhere, in order to drive tobacco consumption, tobacco companies strive to promote and maintain tobacco addiction, including targeting young people to replace tobacco users that quit or die. In ASEAN countries, the major transnational tobacco companies, particularly Philip Morris International (PMI) and British American Tobacco (BAT), dominate the various local markets. In countries such as Thailand and Vietnam, the local cigarette production is owned by the state owned companies. One of the main strategies of these companies is to keep their product prices affordable.

1 Ministry of Health. (2009-2011). 2nd National Health and Nutritional Status Survey 2009-2011. Brunei Darussalam. (Unpublished report), National Institute of Statistics. (2011). Country Report of the 2011 National Adult Tobacco Survey of Cambodia. Ministry of Planning, Cambodia, Ministry of Health. (2013). Basic Health Survey Report (RISKESDAS). Republik of Indonesia, Lao Statistics Bureau and National Institute of Public Health (2012). National Adult Tobacco Survey (NATS) 2011: Country Report: Lao People’s Democratic Republic. Ministry of Planning and Ministry of Health, Lao PDR, Institute for Public Health (IPH). (2012). Report of the Global Adult Tobacco Survey (GATS) Malaysia, 2011. Ministry of Health Malaysia, Ministry of Health. (2007). Myanmar STEPS survey, 2009. Myanmar, Department of Health (2010). 2009 Philippines’ GATS- Global Adult Tobacco Survey: Country Report. Philippines, - Ministry of Health. (2013). National Health Survey 2012. Epidemiology and Disease Control Division, Ministry of Health, Singapore. Available at http://www.moh.gov.sg/content/dam/moh_web/ Publications/Reports/2011/NHS2010%20 %20low%20res.pdf, National Statistical Office. (2014). The 2013 Health and Welfare Survey. Ministry of Information and Communication Technology, Bangkok, Thailand, Ministry of Health. (2010). Global Adult Tobacco Survey (GATS) Viet Nam 2010. Vietnam.

Tobacco Taxes and Prices in ASEAN : an Overview May 2014 3

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Figure 2: Price of most popular local and foreign brands 2014 (in USD)

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10

0

2.12

6.47

0.351.30

1.62

3.70

0.961.60

9.52

1.080.892.06 2.06

0.851.20

Most Popular Local Brand Most Popular Foreign Brand

ARA

Alain

Delon

A Mild

Marlbo

ro

A Den

g

Marlbo

roJo

hn

Dunhill

20’s

Fortu

ne

Marlbo

ro

Marlbo

ro

Krong

thip

L&M

Vinata

ba

Marlbo

ro

Marlbo

ro

Gold

0.72-1.00

Brunei Cambodia Indonesia Lao PDR Malaysia Philippines Singapore Thailand Vietnam

3. Affordability TrendsWith a population of 600 million, ASEAN countries have seen and are expected to continue to see rapid economic growth. Increases in income coupled with the tobacco industry’s strategy of keeping prices as profitably low as possible have led to increasing affordability of tobacco products, particularly in low- and middle-income countries. Compared to per capita GDP, research has shown that the Relative Income Prices (RIPs) of cigarettes2 in six countries (Cambodia, Indonesia, Lao PDR, Philippines, Thailand, and Vietnam) have steadily decreased from 1999-2010, except in Thailand, where it has been relatively stable. Still, RIPs in all countries, including Thailand, are very low (6% or less of per capita GDP), with the Philippines having the lowest RIPs and Vietnam having the highest. This means that cigarettes have become relatively cheaper and more affordable over the past decade, contributing to the growth in tobacco consumption.

Figure 3: Relative income prices (RIPs), 1999-2010

02468

10121416

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1999

Per

cent

age

%

CambodiaIndonesiaLao PDRPhillippines

ThailandVietnam

4. Tobacco Tax Rates and SystemsTobacco taxes can be a reliable source of government revenue (Table 1). In addition, Parties to the FCTC recognize that price and tax measures are an effective and important means of reducing tobacco consumption by various segments of the population, in particular young persons (FCTC Article 6)3. Because the demand for tobacco is relatively price inelastic (i.e. the increase in price can be expected to be proportionally larger than the decline in demand/consumption), revenues will generally increase as a result of tax increases, even as consumption declines more gradually.

It is further estimated that young people are two to three times more responsive to tax and price changes than older people. Therefore, tobacco tax increases are likely to have a significant effect on reducing the consumption, prevalence, and smoking initiation by the youth.

To achieve the public health objective of taxation, tax rates must be high enough to increase tobacco product prices and reduce their affordability over time. Toward this end, the World Bank has recommended that the total tax burden should be between two-thirds and four-fifths of the retail price4, while WHO recommends that tobacco excise taxes should make up at least 70% of the retail price5.

2 Percentage of per capita GDP required to purchase 100 packs of cigarette.3 World Health Organization Framework Convention on Tobacco Control (adopted 21 May 2003, entered into force 27 February 2005).4 Jha, P. and Chaloupka, F.J. (1999). Curbing the Epidemic: Governments and the Economics of Tobacco Control. World Bank, 5 World Health Organization. (2010). WHO Technical Manual on Tobacco Tax Administration.

Tobacco Taxes and Prices in ASEAN : an Overview May 20144

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Figure 4: Tobacco tax burden as percentage of cigarette retail price, 2014

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

0 %

62

20-25

59

16-19.7

46 50 53

71 70

41.6

VietnamThailand

Singapore

Myanmar

Philippines

Malaysia

Lao PDR

Indonesia

CambodiaBrunei

Note: Rates for countries following the tier-system are based on average/most applied rates The estimate was calculated based on premium cigarette brand for Brunei, Malaysia and Singapore

Table 2 summarizes the tobacco tax systems in ASEAN countries. While governments have a sovereign right to determine their tax systems, the Conference of Parties to the FCTC have adopted recommendations that specify implementing the simplest and most efficient system that meets their public health and fiscal needs and considering implementing specific or mixed excise systems with a minimum specific tax floor, as these systems have considerable advantages over purely ad valorem systems6.

Table 1: Government revenue from tobacco taxes (in USD), 2005-2013

Country 2005 2006 2007 2008 2009 2010 2011 2012 2013

Brunei Darussalam No data No data No data No data 14,139,272 21,627,906 9,612,403 4,400,000 233,000

Cambodia* 5,100,000 6,200,000 7,800,000 11,100,000 13,100,000 22,260,500 16,443,500 10,582,563 13,825,230

Indonesia 3,548,913,043 4,017,391,304 4,726,086,957 5,426,086,957 6,019,565,217 6,556,188,503 7,591,921,284 7,861,949,208 6,726,286,086

Lao PDR 3,321,341 4,239,634 4,923,659 9,525,732 11,967,927 20,091,439 26,623,414 30,040,414 32,376,625

Malaysia 892,857,143 857,142,857 964,285,714 1,071,428,571 1,107,142,857 No data 1,645,569,620 1,065,000,000 1,089,000,000

Philippines 512,987,013 580,086,580 500,000,000 595,238,095 523,809,524 720,909,090 590,840,909 737,287,377 1,575,470,009

Singapore 510,093,057 444,366,500 501,073,729 568,002,863 666,857,552 683,923,076 749,689,922 769,206,508 800,627,221

Thailand 1,157,363,636 1,080,333,333 1,267,393,939 1,267,636,364 1,331,393,939 1,779,366,666 1,906,533,333 1,997,133,333 2,262,100,000

Vietnam 380,200,000 378,800,000 395,600,000 444,700,000 521,100,000 576,999,896 649,420,725 804,200,000 716,200,000

*Tobacco tax revenue from domestic tobacco products only

6 Set of guiding principles and recommendations for implementation of Article 6 of the WHO Framework Convention on Tobacco Control (Price and tax measures to reduce the demand for tobacco), adopted in 2012.

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Table 2: Tobacco tax systems in ASEAN countries (as of 2014)

CountryType of Tax Applied

Excise Rate VAT/GST Import Tariffs Others

Specific Tax

Brunei BND 0.25/stick N/A N/A N/A

Indonesia IDR80-380/stick (multiple tiers) 8.4% 0% from ASEAN plus China 40% from outside ASEAN plus China

Local cigarette tax 10% of excise tariff

Philippines PHP 17 or 27 per pack (2 tiers) 12% 3%-10% Single uniform rate by 2017, then annual 4% increase starting in 2018

Singapore SGD 0.388/stick 7% N/A N/A

Ad Valorem Tax

Cambodia 10% of 65% of invoice price 10% 7%-35% plus 10% import VAT

Public lighting tax 3% of invoice value, Profit tax 20% of profit,

Turnover tax 2% of invoice value

Myanmar 100% of retail price 16% 30% on CIF 1% special excise duty, profit tax, income tax

Vietnam 65% ex-factory price 10% 30-140% N/A

Mixed System

Lao PDR 15-30% of production cost, plus LAK 500 additional specific tax 10% Flat rate USD 200 for premium

brands Royalty fee 15% of production cost

Malaysia MYR 0.25/stick, specific tax plus 20% of ex-factory cost 5% MYR 0.20/stick N/A

Thailand87% of ex-factory price,

specific tax or THB1/gramwhichever value is higher

7% Exempted but other local taxes are applied

Local tax THB0.093/stick, ThaiHealth tax at 2% of excise, and TV tax at 1.5% of excise

5. Sustainable Funding for Health PromotionRecognizing the huge health harms caused by tobacco and considering that tobacco taxes provide a reliable source of revenues, a number of governments, since the late 1980s, have allocated tobacco tax revenues for tobacco control and health promotion initiatives. These dedicated funds have become an important source for sustaining and complementing long-term programs and projects to reduce the burden of non-communicable diseases and health inequality.

Among ASEAN countries, Brunei, Lao PDR, Malaysia, Singapore, Thailand, and Vietnam have established various tobacco control/health promotion funding mechanisms (Table 3).

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Table 3: Funding for health promotion/tobacco control in ASEAN countries

Type of Funding Source for Health Promotion Foundation / Tobacco Control Fund

Year of Establishment Total Budget

Within the Ministry of Health budget

Singapore Health Promotion Board 2001 USD 95.7 million (2014)

Health Promotion Centre, Ministry of Health Brunei 2008 USD 560,000 (2013-2014)

Treasurer budget

Malaysian Health Promotion Board (MySihat) 2006 USD 3.08 million (2013)

Surcharge tax

Thai Health Promotion Foundation (Thai Health) 2001

2% surcharge levied on excise tax from alcohol and tobacco USD120-130 million (2013-2014)

Vietnam Tobacco Control Fund 20131% excise tax, effective May 1, 2013; 1.5% from May 1, 2016; and 2% from May 1, 2019

Lao PDR Tobacco Control Fund 20132% profit tax plus 200 LAK (per pack) USD 2.1 million (2013-2014)

6. Illicit Trade of Tobacco ProductsThe illicit trade of tobacco products has serious adverse health and socio-economic implications, reducing government revenues and undermining price and tax measures to reduce tobacco consumption. In addition, the tobacco industry has consistently utilized illicit trade as an argument against increasing tobacco taxes, despite the fact that the share of illicit trade in the global market has remained stable (estimated at 9-11%) since 20007 and is significantly higher in low- and middle-income countries, which have cheaper prices, compared to high-income countries, which have higher prices but less illicit trade.

While illicit tobacco trade does occur, increases in tax rates have had no direct correlation with increases of illicit trade in tobacco products as claimed by the tobacco industry. Evidence clearly shows that illicit trade in tobacco is multifactorial and that reducing illicit trade is best achieved through controlling the supply chain and effective law enforcement8 and not by keeping taxes low.

Article 15 of the FCTC addresses the issue of illicit trade in tobacco products, and a Protocol to Eliminate Illicit Trade in Tobacco Products9 was adopted by the 5th Conference of Parties to the FCTC in 2012.

Key provisions of the Protocol pertain to controlling and securing the supply chain of tobacco products, such as:

• licensing for the manufacture, import, and export of tobacco products and manufacturing equipment;

• establishing a national or regional tracking and tracing system for all tobacco products (which will be part of a global tracking and tracing regime that includes a “global information-sharing focal point” located at the FCTC Secretariat);

• due diligence requirements;

• subjecting the sale by Internet, telecommunication and evolving technology, as well as duty-free sales to the Protocol; and

• implementing control measures in free zones and international transit.

7 Eriksen M, Mackay J, Ross H. (2012). The Tobacco Atlas, Fourth Ed. Atlanta, GA: American Cancer Society; New York, NY: World Lung Foundation. Retrieved from www.tobaccco.org

8 Joossens L and Raw M. (2008). Progress in combating cigarette smuggling: controlling the supply chain. Tob Control 2008;17;399-404.9 Full text available online at: http://who.int/iris/bitstream/10665/80873/1/9789241505246_eng.pdf

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Law enforcement measures such as establishing a number of conducts as unlawful and subjecting them to effective and dissuasive sanctions are another major area of the Protocol, as is broad international cooperation in the investigation of illicit trade, including by affording mutual legal assistance and extradition and through information sharing, technical assistance and cooperation.

Currently there are 54 signatories to the Protocol, including Myanmar, which is the first ASEAN country to sign this Protocol, and one Party to the Protocol, Nicaragua.

7. Policy Recommendations• To reduce tobacco-caused diseases, disabilities, and premature deaths in developing countries and curb rising socio-

economic burdens on their societies, national governments should take account of their national health objectives when developing and implementing their tobacco taxation policies.

• To discourage initiation among youths and curb current tobacco use, tobacco excise taxes should be increased regularly, preferably on an annual basis, ensuring that tax increases are significantly high enough to reduce affordability and curb consumption.

• Tax systems should be simplified and taxes applied uniformly across all tobacco products to discourage users from downtrading or switching to lower-priced products, to facilitate tax collection, and to prevent tax loopholes that the tobacco industry can exploit. Complicated systems like those of the tier-system should be avoided.

• Tax administration and law enforcement should be strengthened to effectively monitor, prevent, and counter tax avoidance and evasion, as well as illicit trade activities by using mechanisms described in the FCTC Protocol to Eliminate Illicit Trade in Tobacco Products. The collaboration between tax, customs, and health departments among ASEAN countries is essential to control illicit trade, particularly in the light of the ASEAN Economic Community (AEC).

• Clear legal boundaries between the government and the tobacco industry with well-defined formal channels for interaction, penalties for deviation from these channels, and clear ethical and moral codes for government officers when interacting with the tobacco industry need to be established. These should comply with the international guidelines adopted to implement Article 5.3 of the FCTC.

• The government revenues from tobacco taxes should be allocated specifically to strengthen tobacco control and health promotion.

• National governments need to establish systems to effectively monitor tobacco consumption, price data, illicit tobacco trade, corruption, and changes within the tobacco industry.

ReferencesTan YL and Dorotheo, U. (2013). The ASEAN Tobacco Control Atlas. SEATCA. Bangkok. Thailand.

SEATCA. (2012). Affordability of Cigarettes and the Impact of Raising Tobacco Excise Taxes in Southeast Asia : Cambodia, Indonesia, Lao PDR, Philippines, Thailand and Vietnam.

SEATCA. (2014). ASEAN Tobacco Tax Report Card: Regional Comparisons and Trends.

WHO. (2014). Illicit trade protocol overview. http://www.who.int/fctc/protocol/about/Protocol_overview_Oct2013_EN.pdf?ua=1. (Accessed 10 March 2014).

The Southeast Asia Initiative on Tobacco Tax (SITT) is SEATCA’s project to institute effective tax increases and to allow for sustainable funding mechanisms for tobacco control in Cambodia, Indonesia, Lao PDR, Philippines and Vietnam, in line with Article 6 of the WHO Framework Convention on Tobacco Control.

SITT is supported by a grant from the Bill and Melinda Gates Foundation. All information and views presented in this report do not necessarily represent those of the funding organization, its staff, or its Board of Directors.

The information for this report was drawn from multiple sources. Reasonable efforts have been made to ensure accuracy at the time of publication. If there are unintentional errors please convey this information to the authors.

Towards a healthy,tobacco-free ASEAN

Mission:Working together

to save livesby accelerating

effective implementationof the FCTC

in ASEAN countries