OECD

While countries in Latin America and the Caribbean (LAC) have gradually, albeit partially, aligned their tobacco tax policy with the World Health Organization (WHO) best practices, progress on tobacco excise tax reform has stagnated since 2012 and significant scope for improvement remains.

Cigarettes, which are the most widely consumed tobacco product in the region, are in general highly affordable and have become more so over time. Effective tax rates on cigarettes remain below the WHO’s recommended tax rate of at least 75% of the retail price of tobacco. In the short run, a tobacco tax increase will tend to have a positive impact on tobacco tax revenue, even if tobacco use would decrease, because smokers tend to adjust their smoking behaviour slowly over time. In the longer run, the reduction in health, economic and social costs would outweigh the drop in tax revenue, thereby resulting in a positive impact for the government budget and improved health outcomes. 

To improve the effectiveness of tobacco tax policy and administration, the report recommends that LAC countries increase tobacco excise tax rates, seek to account for the strategic responses of the tobacco industry when designing tobacco tax policy, strengthen tobacco tax administration, introduce accompanying measures to tackle illicit tobacco trade, ensure that tobacco excise and income tax policies are coherent, and strengthen domestic and regional tobacco tax co-operation.