Countries in Latin America and the Caribbean (LAC) have made significant progress in tackling the adverse impact of tobacco use on their societies. Smoking prevalence and tobacco-related death rates have declined in most countries in the LAC region in the past two decades. Many factors, including the implementation of effective tobacco control policies and strict regulation that prevents smoking in public spaces and advertisement bans for tobacco products, have contributed to this positive outcome.
However, there remain significant tobacco-related health challenges for individuals and societies. Tobacco use has substantial economic costs. Tobacco users often face higher health expenses due to tobacco-related illnesses and reduced resilience to cope with diseases, such as cardiovascular or lung diseases, COVID-19, etc. At the societal level, smoking-related diseases incur pre-mature deaths, productivity and welfare losses, and impose a heavy burden on health systems in the LAC region.
Carefully designed tobacco tax reforms will help governments reach both their health and tax revenue objectives. By incentivising smokers to quit or reduce smoking (including smoking initiation), tobacco taxes lower smoking-related individual and societal costs and send a signal to set societies on a path towards tobacco-free generations. Tobacco taxes have revenue potential that can contribute to the financing of health systems. This revenue potential is underutilised in LAC, despite the large investment needs in health systems highlighted during the COVID-19 pandemic. In the longer run, tobacco taxes reduce tobacco consumption which has a positive impact on tobacco-related diseases and public health expenditure.
While progress in tobacco tax reform has been significant, there remains substantial scope for further tobacco tax reform. According to the World Health Organisation (WHO), increasing tobacco taxes and prices is the single most effective and cost-effective measure for reducing tobacco use. Over the last decades, countries in the LAC region have made significant tobacco tax reform progress. For instance, many countries have now largely aligned the design of their tobacco excise taxes with the WHO’s tobacco tax policy best practices. However, more recently, tobacco tax reform progress has stalled, and there remains significant scope in many LAC countries to improve the design and administration of tobacco taxes.
This report supports efforts to put tobacco taxation on the policy agenda and to set in motion ambitious tobacco tax reforms in LAC countries. The report provides an overview of the health impacts of tobacco consumption, the tax revenue that is raised by tobacco taxes, the design and administration of tobacco taxation, the tobacco tax reforms that LAC countries have implemented, the impact of tobacco taxes on tobacco prices and the affordability of tobacco products. The analysis builds on information collected at the country level and published by academics, national institutions, and international and regional organisations. Information from this report can be used to benchmark a LAC country against other countries in the region, or to compare the region with tobacco taxation practices in other parts of the world. Such a benchmarking exercise can be used to enhance the dialogue between Health Ministries, Finance Ministries, tax administrations, revenue agencies and customs authorities, to discuss the relevance of tobacco taxation from a budget perspective, to strengthen the design and administration of tobacco taxation and to start regional tobacco tax cooperation.
Chapter 1 of the report sets the scene. The chapter focuses on the consumption trends in tobacco products in LAC countries, both among adults and young individuals. It outlines the adverse effects of tobacco consumption, including the burden it places on public health, the substantial health expenditures it incurs, and the losses in productivity it entails. Additionally, it evaluates the current state of tobacco control policies in the region. The chapter discusses the efficacity of tobacco tax policies in raising cigarette prices, and the role of tobacco excise taxes (defined as taxes levied on tobacco products produced for sale within a country, or imported and sold in that country, at a specific stage of production or distribution).
Chapter 2 focuses on tobacco tax revenue, building on data from the OECD Revenue Statistics database, the WHO and national data sources. The chapter focuses on tobacco excise tax revenue in countries in LAC and presents a series of correlations between tobacco excise tax revenue and other indicators of tobacco use and tax policy.
Chapter 3 provides an overview of tobacco tax policy design in countries in LAC. The chapter describes the design of excise taxes on tobacco products, focusing on a wide range of factors, including: the tax structure, the tax base, tax rates, indexation mechanisms, tax floors and tax caps and tobacco excise revenue earmarking practices. The chapter discusses the design of other indirect taxes that are levied on tobacco products, including the value added tax (VAT), import duties and other indirect taxes. The chapter also provides information on the authorities that are involved in the design of tobacco tax policy in each country, the tobacco excise tax administration as well as the tobacco sale regulations that support tobacco tax policy. The chapter looks at all types of tobacco products (cigarettes, cigars, cigarillos, Roll-Your-Own tobacco, new tobacco and nicotine products) and places greater emphasis on cigarette taxation as this is the first tobacco product consumed in LAC.
Chapter 4 discusses the need for tobacco tax reform in LAC. The chapter starts by an overview of the implementation of tobacco tax policy best practices in LAC countries. It evaluates the extent to which past country tobacco excise tax reforms are aligned with the WHO tobacco tax policy best practices. The chapter then points at the reasons why LAC countries have significant scope to introduce tobacco tax reforms, both at the domestic and regional level, and what are some tobacco tax reform options.
Chapter 5 shows that many tobacco excise tax reforms took place before 2011, and that the pace and scale of tobacco excise tax reform in LAC has decreased since 2012. The chapter discusses measures to further reduce smoking prevalence. In particular, countries will have to take into account the behavioural responses of the tobacco sector to tobacco tax reforms, better align tobacco tax administration and tax policy design, put the affordability of tobacco products at the centre of their tobacco tax reforms, ensure that Ministries of Finance and Health, tax administration, revenues agencies and customs authorities cooperate on a recurrent basis, and engage in a regional tobacco tax cooperation.
Chapter 6 presents country profiles for the following 18 countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru and Uruguay. Subject to data availability, each country profile provides information on tobacco use prevalence, MPOWER measures, taxes and prices of the most sold brand of cigarettes, trends in retail prices of cigarettes by brand category, affordability of cigarettes, the design of tobacco excise taxes across tobacco products, tobacco tax reforms, tobacco excise tax revenue, the average excise tax revenue collected per pack of 20 cigarettes sold, and the change in the main tobacco tax policy indicators.