Download Excise tax rates and budget revenues from cigarettes taxation in

Ministry of Health of the Republic of
Uzbekistan
«Health-2» Project
World Bank
Changes in budget revenues and tobacco
consumption, if tobacco products excise
rates are increased
Shukurov Sh. – «Health-2» Project Specialist
Yurecly A. – World Bank consultant
December 13, 2007, Tashkent, Uzbekistan
1
Excise tax rates and budget revenues from cigarettes
taxation in Uzbekistan
Budget tax revenues increase along TP excise tax rate increase
25
80
20
21,6
million soums
54,1
20,9
72,4
68,4 70
21,6
20,1
60
50
16,5
46,5
15
67,3
40
12,1
12,8
10
30
26,6
20
5
10,4
8,3
3,4
10
4,2
0
97
98
Reference year – 1996
excise tax rate (soums)
67,5
0
99
'00
'01
Excise tax revenues (million soums)
'02
'03
'04
'05
2
Excise tax rate per pack (soums)
Change in real GDP per capita, nominal and real excise tax
rate/pack during 1997-2005
80
40
70
35
real GDP
60
30
50
25
nominal excise tax rate
40
20
30
15
20
real excise tax rate
10
10
5
0
0
1997
Baseline – 1996
1998
1999
2000
2001
nominal excise tax rate/pack (soums)
real GDP per capita (thous. soums)
2002
2003
2004
2005
real excise tax rate/pack (soums)
real GDP per capita
nominal and real excise tax rates per pack
the real increase in excise tax rate is not backed up by annual inflation rate
Revenues from excise taxes for TP in the period of
1997-2005 in real and nominal terms
Real increase of excise tax revenues does occur, which requires
correcting excise tax rates taking into account annual inflation rate
25
Excise tax revenues in real terms (billion
soums)
4,2
21,6
4
21,6
20
20,9
3,5
3
3,0
20,1
16,5
15
2,5
2,6
2,1
2
12,8
2,4
12,1
2,0
2,0
10
1,9
1,5
1,6
1
0,5
5
4,2
3,4
0
Excise tax revenues in nominal terms (billion
soums)
4,5
0
97
Reference year– 1996
98
99
'00
'01
'02
'03
'04
'05
Excise tax revenues in real terms (billion soums)
Excise tax revenues in nominal terms (billion soums)
4
Excise tax rates and budget revenues from cigarettes
taxation in Uzbekistan
Budget tax revenues increase along TP excise tax rate increase
25
80
20
21,6
million soums
54,1
20,9
72,4
68,4 70
21,6
20,1
60
50
16,5
46,5
15
67,3
40
12,1
12,8
10
30
26,6
20
5
10,4
8,3
3,4
10
4,2
0
97
98
Reference year – 1996
excise tax rate (soums)
67,5
0
99
'00
'01
Excise tax revenues (million soums)
'02
'03
'04
'05
5
Excise tax rate per pack (soums)
In 2005, reduction of excise tax resulted in decrease of budget
revenue
Average
cigarette
price/pack* (soums)
Reduction in excise tax rate
by 5% (soums)
Sales (mln. packs)
Budget revenue from excise
taxes (bln.soums)
* Note: most popular brands
2004
2005
250 - 600
250 - 600
72
68,4
297,8
293,5
21,5
20,1
How higher taxes can be good for population health?
Price elasticity for tobacco products ranges from (-0.4) to (-0.8)
10%
Increase in prices of
tobacco products
change the smoking
habits.
The tax increase results in
the reduction of
consumption:
A 10% price increase reduces
the consumption by
4% in developed countries
8% in developing countries
8%
6%
8%
4%
2%
4%
0%
-2%
-4%
-8%
-4%
-6%
-8%
Developed states
-10%
Developing states
price elasticity
Forecast of budget revenues and tobacco products
consumption in case of excise tax rise
Increase of excise tax rate will provide for budget tax revenue increase
293
26,6
290
consumption (million packs)
290
26
288
25,9
285
24,3
282
23,4
24
278
275
22,8
22,8
275
25
25,1
285
280
27
23
22
270
21
265
20
0%
Reference year– 2005
1%
5%
10%
15%
20%
Consumption (in million packs)
Excise tax revenues (billion soums)
excise tax revenues (billion soums)
295
25%
8
Forecast of share of budget revenues and consumption of TP,
in case excise tax rate is increased
Excise tax rate rise will provide for increased budget tax revenues
20%
16,70%
13,39%
15%
10%
10%
6,42%
5%
2,77%
-0,23%
0%
1%
-1,10%
-5%
5%
-1,90%
10%
15%
-3,00%
-4,10%
20%
-5,20%
25%
-6,20%
-10%
Reference year – 2005
share of excise rate increase
Share of excise tax revenue change
Share of TP consumption change at demand elasticity of 1,0
9
Forecasts of total budget revenue (excise tax plus VAT) from
cigarettes in case of excise tax increase
Increase of excise tax rate will provide for increased budget revenues
45
10%
44
8,9%
share of changes of total
budget revenues from
cigarettes
total budget revenue from
cigarettes
43,8
8%
43,1
43
7,0%
42,3
42
41,5
6%
5,2%
4%
41
40,7
3,2%
40,3
2%
40
1,1%
0%
39
-0,5%
38
-2%
1%
5%
Reference year – 2005
10%
15%
20%
25%
share of excise tax increase
total budget revenues from cigaretes (billion soums)
share of changes of total budget revenues from cigarettes (%%)
10
Change in smoking attitude of men when the price of cigarettes
increases by 100%
60%
despite the increase in prices, many smokers will still continue to smoke
50%
52%
40%
40%
30%
32%
32%
20%
23%
24%
22%
16%
10%
13%
11% 13%
0%
10%
7%
will give up
smoking
will smoke less
low-income male smokers
will smoke at the
same amount
will smoke cheaper
cigarettes
average-income male smokers
will consume
nasvay instead
high-income male smokers
Share of illegal import of cigarettes in the total
volume of cigarettes consumption in Uzbekistan
(2003)
According to the data of Ministry of Finance of
the Republic of Uzbekistan, in 2003, illegal
import of cigarettes comprised around 28,9%
In most countries, similar volume of illegally
trafficked cigarettes is observed, reaching
30%
12
Share of illegal import of cigarettes in the total
volume of cigarettes consumption in Uzbekistan
(2005)
Illegal import of cigarettes in the Republic of Uzbekistan comprises 10.4%,
illegal imports level of 28,9% cannot be confirmed
Total cigarettes consumption by households, in millions of
packs
309,2
Total cigarettes consumption by households, with the
assumption about reduced consumption coverage by 15%, in
millions of packs
355,6
Total volume of tobacco products sales, including domestic
production and imports, in millions of packs
318,5
Illegal import (difference between the total volume of tobacco
products sales and total consumption of cigarettes by
households), in millions of packs
37,1
Share of illegally imported cigarettes
13
10.4%
Conclusions of the economic review

Increase of retail and import prices for
cigarettes by 10%:
– Will increase rates of illegal trafficking by 13%, but
– Tax revenues to the budgets of the countries will
increase anyway (14%) despite the reduction of
the world consumption (1.1%) and loss of tax
revenues (5,5%) caused by trafficking.
14
Article 7. The Law «About licensing of certain
types of activity in the Republic of Uzbekistan»
«Licensed types of activity include those, rendering
which could violate rights and legal interests, harm
health of citizens and breach public safety, and which
can not be regulated by any other methods, but
licensing».
Consequently, production of ‘Nas’ can be referred to a
licensed type of activity, as its consumption can harm
health of the citizens.
15
‘Nas’ harm reduction





‘Nas’ quality standardization
Licensing of ‘Nas’ production and trade
Introduction of excise tax for ‘Nas’
Establishment of a systematic monitoring
Changing of adequate administrative and
criminal measures
16
Conclusion
Win-win situation both for the public health and the
economy in general
1. Increase of excise tax rates for tobacco products will
lead to:
Reduction of tobacco smoking, especially among
young people
Increase of budget revenues despite of expected
losses due to illegal trafficking
2. Regulating of production and trade of ‘Nas’ and its
taxation will lead to:
Limiting access of the youth to the ‘Nas’
Additional source of budget revenues will appear
17