This chapter provides an overview of tobacco tax policy design across 19 countries in Latin America and the Caribbean (LAC). It describes tobacco excise tax structures, tax bases, tax rates, indexation mechanisms, excise tax floors and tax caps, and tobacco excise revenue earmarking practices. The chapter also outlines key aspects of the design of other indirect taxes levied on cigarettes. Finally, the chapter provides information on the authorities involved in tobacco tax policy design, key tobacco excise tax administration features, and tobacco sales regulations.
Tobacco Taxation in Latin America and the Caribbean
A Call for Tobacco Tax Reform
Abstract
A tobacco excise tax is a tax on tobacco products that are produced for sale within a country or imported and sold in that country, at a specific stage of production or distribution. This section provides information on the design of excise taxes in 19 countries in LAC: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela. These countries were selected on the basis of the most comprehensive information available.
3.1.1. Excise tax structure
Tobacco products are subject to excise taxes in most LAC countries (Figure 3.1 and Table 3.1). All countries levy an excise tax on cigarettes. 17 countries levy an excise tax on cigars, cigarillos and Roll-Your-Own (RYO) tobacco. Honduras is the only country that levies an excise tax on cigarettes but not on other tobacco products. In the Dominican Republic, cigars and cigarillos are not subject to a tobacco excise tax. Only five countries levy an excise tax on heated tobacco products (HTPs), while three ban their sales (Brazil, Mexico, Panama). When sales of e-cigarettes (i.e. electronic delivery systems with nicotine – ENDS – and without nicotine – ENNDS) are not banned, only two countries have an excise tax (Costa Rica and Ecuador) while the majority of countries (ten) do not levy excise tax (Perucic et al., 2022[1]).
The excise tax structure – ad valorem, specific, or mixed – is generally the same across tobacco products. An ad valorem tobacco excise tax is a tax on the value of a transaction between two independent entities at some point in the production or distribution chain. A specific tobacco excise tax levies a lump-sum tax amount per stick, pack, per 1 000 sticks, or per kilogram (WHO, 2021[2]). A mixed excise tax structure combines a specific component together with an ad valorem component. 8 out of the 18 LAC countries with an excise tax on tobacco products other than cigarettes apply the same excise tax structure across tobacco products when the latter are taxed (Argentina, Colombia, El Salvador, Jamaica, Nicaragua, Panama, Paraguay and Venezuela) (Table 3.1).
For cigarettes, specific and mixed excise tax structures are the most common. Seven countries levy a specific excise tax on cigarettes and seven countries levy a mixed excise tax that combine a specific and an ad valorem component (Figure 3.1). In contrast, for cigars, cigarillos and RYO tobacco, most countries levy an ad valorem excise tax.
Very few countries levy an excise tax on new tobacco and nicotine products. A limited number of countries (Brazil, Mexico, Panama) ban the sales of HTPs. When the sales of HTPs are not banned, most countries (11) do not levy excise tax. HTPs are taxed in five countries in LAC (Colombia, Costa Rica, Ecuador, Paraguay and Peru). The excise tax structure is ad valorem in three countries (Costa Rica, Ecuador and Paraguay), mixed in Colombia and specific in Peru. More countries ban the sales of e-cigarettes (Argentina, Brazil, Mexico, Nicaragua, Panama, Uruguay and Venezuela) (WHO, 2023[3]). Ten LAC countries that do not ban nor tax e-cigarettes (Table 3.1). Costa Rica and Ecuador are the only countries in LAC with an excise tax on e-cigarettes (Table 3.1). In Ecuador, the excise tax applies only to electronic delivery systems containing nicotine (ENDS).
Tobacco products intended for export are not subject to excise taxes. This is aligned with the destination-based feature of an excise tax that is levied on domestic consumption and not on goods that are exported and consumed in another jurisdiction (see also Chapter 5).
Some LAC countries have tobacco excise tax exemptions (Box 3.1). Handmade tobacco products benefit from preferential excise tax treatment in two LAC countries, while the Dominican Republic allow non-profit organizations to import cigarettes at a zero-excise tax rate.
In number of countries, 2022
Note: The following countries are included: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela. See Table 3.1 for country detailed information. Following the World Health Organisation (WHO) report on the global tobacco epidemic (WHO, 2021[4]), new tobacco and nicotine products in this report include electronic nicotine delivery systems (ENDS), electronic non-nicotine delivery systems (ENNDS) and heated tobacco products (HTP).
Source: National legislation listed in Annex Table 3.B.1.
Tobacco products for export are commonly exempt from excise tax in the source country. The rationale behind the tobacco tax exemption in the source country is to avoid double taxation, as tobacco products will be subject to excise tax in the destination jurisdiction where the tobacco products will be consumed. The tax will typically be levied at the border (OECD, 2022[5]).
Handmade tobacco products benefit from preferential excise tax treatment in a few LAC countries. In Guatemala, handmade tobacco products (either domestically produced or imported) are exempt from excise tax. In Mexico, handmade tobacco products other than cigarettes are taxed at a rate of 30.4% levied on the final (observed) retail price (excluding VAT) and are not subject to the specific excise tax. In contrast, manufactured tobacco products are taxed at a rate of 160% levied on the ex-factory price (cigarettes) or the final VAT-exclusive retail price (non-cigarettes products). Manufactured tobacco products are also taxed with a specific excise tax.
In the Dominican Republic, non-profit organisations (i.e. institutions engaged in religious, educational, cultural, social assistance and other comparable activities) are not subject to excise tax when they import tobacco products.
Source: National legislation listed in Annex Table 3.B.1.
Note: Following the WHO report on the global tobacco epidemic (WHO, 2021[4]), new tobacco and nicotine products in this report include ENDS, ENNDS and HTP. Argentina, Brazil, Mexico, Nicaragua, Panama, Uruguay, and Venezuela do not levy an excise tax on e-cigarettes (ENDS and ENNDS) because their sales are banned (WHO, 2023[3]). Brazil, Mexico, and Panama do not levy an excise tax on HTP because their sales are banned (WHO, 2023[3]). In Brazil, two excise tax structures exist for cigarettes: the general regime (ad valorem) and the special regime (mixed). Most taxpayers opt for the special regime as this regime has lower effective tax rate compared to the general regime (Government of Brazil, 2020[6]). In Mexico, handmade tobacco products other than cigarettes are not subject to the specific excise tax (see Box 3.1). Therefore, the excise tax structure for those products is ad valorem only. In Uruguay, the standard rate of the excise tax on tobacco is 70% levied on the price fixed by the Ministry of Economy and Finance. Hence the Ministry of Economy and Finance considers the excise tax structure to be specific.
Source: National legislation listed in Annex Table 3.B.1.
3.1.2. Excise tax base
Tobacco excise tax bases vary across tobacco excise tax structure (see Annex 3.A). Tobacco excise taxes can be levied either on the value (ad valorem) or the quantity (specific) of the tobacco product. The tax base of ad valorem tobacco excise taxes can be: the ex-factory price (exclusive of other indirect taxes); the cost, insurance and freight (CIF) value for imported products (exclusive of other indirect taxes); the retail price suggested by the manufacturer/importer (excluding or including other indirect taxes); or the final (observed) retail price (excluding or including other indirect taxes). The tax base of specific excise tax is either: the number of sticks of tobacco product (single stick or 1 000 sticks); the number of individual packs; or the weight of the tobacco product.
In ad valorem only excise tax structures, the most common tax base across tobacco products is the suggested retail price (Figure 3.2), although there are significant differences across cigarettes and other tobacco products. Some countries tax the ex-factory price (or CIF value when the product is imported), but this base is less common than the suggested retail price. The suggested retail price includes the distributors and retailers profit margins, and hence leads to a larger tax base compared to the ex-factory price (see Annex 3.A). In mixed excise tax structures, there is no clear pattern for the choice of the tax base of the ad valorem component, but there are some countries that tax the final (observed) retail price of cigarettes as part of a mixed tax structure.
Most countries with an ad valorem tax exclude other indirect taxes from the excise tax base. Two-thirds of LAC countries with an ad valorem excise tax (either ad valorem only or mixed) exclude the value added tax (VAT), import duties, and others indirect taxes (and, in mixed structures, the specific excise component) from the excise tax base. This is observed across all tobacco products (Figure 3.2 and Figure 5.9 in Chapter 5). As a result, the tax base of the ad valorem tax in those countries is significantly narrower compared to countries that include other indirect taxes in the ad valorem excise tax base.
A limited number of LAC countries use the final retail price of tobacco products for the ad valorem excise tax base (Figure 3.2). In Brazil, Chile, and Colombia, the ad valorem excise tax on tobacco products is based on the tax-inclusive final retail prices. In Mexico, the ad valorem component is levied on the final (observed) tax-exclusive retail price for non-cigarette tobacco products (cigars, cigarillos and RYO tobacco), while it is levied on the ex-factory price net of tax for cigarettes. Domestic manufacturers (i.e. excise taxpayers) in Brazil and Chile declare retail prices to the tax authority via the track and trace system. The ad valorem tax rate is applied on those prices that include all other indirect taxes, including the VAT, import duties, specific excise taxes and other additional indirect taxes. In the case of Brazil, the ad valorem tax is included in its own tax base. In Mexico, each January, excise taxpayers have to provide to the tax administration the list of cigarettes on the market, their wholesale, retail and suggested retail prices and any price modification. Colombia is the only country that requires major retail stores to annually report tobacco products’ retail prices to the Revenue Agency. The reported retail prices are used as the excise tax base, including all other indirect taxes. The retail prices reported for the preceding year are adjusted based on projected consumer price index (CPI) growth rates to establish the ad valorem tax base for the subsequent year.
Specific excise taxes in LAC are commonly levied as an amount per stick of tobacco product (Figure 3.3). Most of LAC countries with a specific excise tax (specific only or mixed) on tobacco products use the number of single sticks as the excise tax base. In most cases, the specific tax base is the number of single sticks, except in Bolivia, Honduras and Nicaragua where the specific tax is levied per 1 000 sticks of cigarettes. Other apply the specific component per individual pack of 20 cigarettes (or its equivalent if the individual pack contains less than 20 cigarettes). As RYO tobacco is cut tobacco without uniform packaging, the specific excise duty is often based on weight. However, in Costa Rica and Mexico the tax base is the stick as for other tobacco products. In those cases, equivalence factors are used to compute the tax liability per stick of RYO tobacco based on the average weight of a manufactured cigarette stick (0.6811 gram of tobacco in Costa Rica and 0.75 gram of tobacco in Mexico). Colombia and Peru are the only countries in LAC that levy a specific excise tax on HTPs. There are no countries in LAC which levy a specific excise tax on ENDS or ENNDS.
Number of countries, 2022
Note: The following countries are included: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela. Following the WHO report on the global tobacco epidemic (WHO, 2021[4]), new tobacco and nicotine products in this report include ENDS, ENNDS and HTP. “Other” refers to the tax base for RYO tobacco products in Colombia which is 10% of the specific excise tax. In Brazil, the ad valorem excise tax base is narrowed as it is 15% of the tax-inclusive retail price.
Source: National legislation listed in Annex Table 3.B.1.
Number of countries, 2022
Note: Countries included in the figure are Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela. Following the WHO report on the global tobacco epidemic (WHO, 2021[4]), new tobacco and nicotine products in this report include ENDS, ENNDS and HTP.
Source: National legislation listed in Annex Table 3.B.1.
3.1.3. Excise tax rates
The choice for a tobacco excise tax structure has an impact on the tax rates that are set (see Chapter 5). Tobacco tax structures that rely on a single excise component (either specific or ad valorem) will require setting higher statutory rates compared to mixed structures to achieve a similar effective tobacco tax burden. The analysis included below will therefore examine tax rates of mixed excise tax structures separately from the rates in single component excise tax structures.
Cigarettes
In ad valorem only excise tax structures, statutory tax rates on cigarettes vary widely (Figure 3.4). Ad valorem rates range from 100% in Guatemala to 20% in Paraguay which is particularly low as it is levied on a narrow tax base (i.e. the ex-factory price compared to suggested retail price in Argentina, Panama and Venezuela).
In specific only excise tax structures, significant differences in tax rates can be observed for cigarettes (Figure 3.5). The specific tax for a pack of 20 cigarettes is around USD 2 in four out of the seven countries with a specific only excise tax. However, important differences in specific tax can be observed when taxes are expressed in USD purchasing power parity (PPP). Bolivia is the only country which continues to have a tiered system that levies two different rates based on the type of tobacco used in cigarettes (blond or brown).
Statutory tax rates for a pack of 20 cigarettes in percentage of the tax base, 2022
Note: Ad valorem tax bases are tax exclusive in all countries included in the figure, except in Venezuela where the ad valorem tax is levied on the tax-inclusive suggested retail price.
Source: National legislation listed in Annex Table 3.B.1.
Specific excise tax for a pack of 20 cigarettes in USD and USD PPP, 2022
Note: For Bolivia, the figure shows the highest rate of the tiered system. Specific excise taxes in USD purchasing power parity (PPP) are based on the implied PPP conversion rate from the International Monetary Fund (IMF) World Economic Outlook Database (October 2023). Specific excise taxes have been standardized to a 20-unit pack to allow the comparison across countries with different tax bases.
Source: National legislation listed in Annex Table 3.B.1; IMF World Economic Outlook Database (IMF, 2023[7]).
Countries with mixed excise tax structures that have a relatively low ad valorem rate tend to have a higher specific tax (and vice versa). Compared to other countries with a mixed excise tax structure included in Figure 3.6, Chile, Colombia and the Dominican Republic levy relatively higher rates in USD PPP for the specific component (Figure 3.6 – Panel A) and lower rates for the ad valorem component (Figure 3.6 – Panel B). These three countries rely more on the specific component of their mixed systems. Costa Rica has relatively high rates for both the ad valorem and the specific tax component. The ad valorem component is levied on the ex-factory price of cigarettes net of taxes (or CIF value for imported products) which is a narrow base compared to the retail price. The high statutory rate (160%) of the ad valorem component in Mexico is also levied on the narrow tax base of the ex-factory price. The rate of the specific component in Brazil is the lowest across mixed tobacco excise tax structures. While the rate of the ad valorem rate component is relatively high (66.7%), its tax base (15% of the tax-inclusive retail price) is narrow. As a result, the share of the ad valorem component in Brazil represents only 10% of the (tax-inclusive) retail price (Government of Brazil, 2022[8]).
Note: Specific taxes in USD PPP are based on the implied PPP conversion rate from the IMF World Economic Outlook Database (October 2023). Specific excise taxes have been standardized to a 20-unit pack to allow the comparison across countries with different tax bases. The specific tax for Chile is the annual simple average of the monthly CPI-adjusted specific tax. Excise tax rates for Brazil correspond to the special excise tax regime (see Table 3.1). The ad valorem tax base is tax-exclusive in Costa Rica, the Dominican Republic, El Salvador and Mexico; and tax-inclusive in Brazil, Chile and Colombia. In Brazil, the ad valorem excise tax base is narrowed as it is 15% of the tax-inclusive retail price.
Source: National legislation listed in Annex Table 3.B.1; IMF World Economic Outlook Database (IMF, 2023[7]).
Non-cigarette tobacco products
Three countries do not tax all traditional tobacco products (Table 3.2). Honduras does not tax cigars, cigarillos and RYO tobacco. The Dominican Republic does not tax cigars and cigarillos. Jamaica does not tax RYO tobacco.
New tobacco and nicotine products are taxed in a limited number of LAC countries (Table 3.2). Among countries that do not ban the sale of HTP, eleven do not levy an excise tax on HTP (Argentina, Bolivia, Chile, the Dominican Republic, El Salvador, Guatemala, Honduras, Jamaica, Nicaragua, Uruguay and Venezuela). Among the five countries that levy an excise tax on HTP, three tax them with an ad valorem excise tax (Costa Rica, Ecuador and Paraguay), one with a mixed excise tax (Colombia) and one with a specific excise tax (Peru). The rate at which HTP are taxed is similar than the one applied to other non-cigarette tobacco products in three countries (Colombia, Ecuador and Paraguay). Regarding ENDS and ENNDS, ten countries do not ban their sales nor levy an excise tax on those products. Their sales are banned in seven countries (Argentina, Brazil, Mexico, Nicaragua, Panama, Uruguay, Venezuela). Only Costa Rica levies an ad valorem excise tax on both ENDS and ENNDS while the ad valorem tax in Ecuador is levied only on ENDS.
Seven countries have similar excise tax structures across tobacco products and similar (or close) excise tax rates. Those are Colombia (with higher rates for RYO tobacco), Costa Rica (with slightly lower rates for RYO tobacco), Jamaica (with RYO tobacco not taxed), Mexico (with tiered rates ranges for handmade non-cigarette products), Panama, Paraguay (including for new tobacco and nicotine products) and Venezuela. Four countries have a similar excise tax structure and rates across non-cigarette tobacco products but that differ from cigarette taxation (Argentina, Chile, Ecuador and Peru) (Table 3.2).
The tax structure or rates vary across tobacco products in some countries. For instance, in Brazil the ad valorem tax rate is the same for all non-cigarette products except for cigarillos that are taxed at a higher rate (300%). El Salvador has a mixed structure for all tobacco products with same rates applying except for cigars that are taxed significantly higher. In Guatemala, excise tax structures and rates vary. In Nicaragua, the excise tax structure is the same across non-cigarette tobacco products and is levied per kilogram. However, it varies significantly when the statutory rate is standardized to a 20-unit pack. In Bolivia, the excise tax structure is specific for all tobacco products, except for RYO tobacco which is ad valorem. Similarly, in Uruguay the excise tax levied on cigarettes and RYO tobacco is specific while it is ad valorem for cigars and cigarillos (Table 3.2).
Two LAC countries have tiered rates for non-cigarette tobacco products. In Guatemala, the specific tax for cigars has four tiers based on length and weight, with an additional tier rate for cigars imported from non-Central American countries. RYO tobacco is taxed with two tiered rates that vary based on the tobacco’s origin (i.e. RYO tobacco imported from Central American countries is taxed at lower rates). In Mexico, handmade tobacco products benefit from a lower ad valorem rate (30.4% against 160% for manufactured tobacco products) and are not subject to the specific excise tax.
In USD PPP, current USD and percentage of the tax base, 2022
Note: Ad valorem tax base “EFP” means “Ex-factory price/CIF value”; “SRP” means “Suggested retail price by the manufacturer/importer”; “FRP” means “Final (observed) retail price”; “Other” refers to the ad valorem tax base for Roll-Your-Own (RYO) tobacco products in Colombia, which is 10% of the specific excise tax applied to RYO tobacco; blank cells mean that there is no excise tax for the corresponding tobacco product. In Mexico, handmade tobacco products other than cigarettes are not subject to the specific excise tax (see Box 3.1). Therefore, the excise tax structure for those products is ad valorem only. In Uruguay, the ex-factory price of cigars and cigarillos is multiplied by 1.85 to get the taxable base of the ad valorem excise tax. Following the WHO report on the global tobacco epidemic (WHO, 2021[4]), new tobacco and nicotine products in this report include ENDS, ENNDS and HTP. Specific taxes are converted into USD PPP with the implied PPP conversion rate available in the IMF World Economic Outlook Database (October 2023). Specific excise taxes have been standardized to a 20-unit pack to allow the comparison between countries with different tax bases. Specific tax in Nicaragua for non-cigarette tobacco products is levied on each kilogram. To compute the specific tax for a 20-unit pack, the median weight of cigars is assumed to be 14.1 grams while for cigarillos the median weight is 2.8 grams (Yassin S, 2022[9]). Specific tax for RYO tobacco products in Colombia and El Salvador is levied on each gram, while it is levied on each kilogram in Nicaragua. To compute the specific tax for an equivalent 20-unit pack of RYO tobacco in those countries, it is assumed that the median cigarette in terms of weight contains 0.75 gram of tobacco (Gallus et al., 2014[10]). In the case of Costa Rica and Mexico, national legislations listed in Annex Table 3.B.1 assume a median weight for a cigarette stick of 0.6811 grams and 0.75 grams respectively.
Source: National legislation listed in Annex Table 3.B.1; IMF World Economic Outlook Database (IMF, 2023[7]).
3.1.4. Indexation mechanisms
Regular adjustments of specific excise taxes on tobacco products are a common practice in LAC. The specific excise tax is adjusted regularly in 11 of the 14 LAC countries with a specific excise tax on cigarettes (Table 3.3). The aim is to ensure that the effective tax expressed in nominal monetary value does not erode over time as a result of inflation and, possibly, real income growth. Some countries, such as Colombia, Chile, the Dominican Republic, Honduras and Nicaragua introduced the indexation of the specific excise tax many years ago (2004 – 2010) while others, such as Mexico and Peru, only have started indexing the specific tax in 2019 (Table 3.3 and Figure 5.2 in Chapter 5). Most of the adjustments in the specific taxes are realised annually through the adoption of decrees rather than being carried out automatically at a fixed point in time. In the Dominican Republic, the specific tax is adjusted quarterly while in Chile it is automatically adjusted every month.
The most common practice is to annually index the specific component with inflation, typically using the growth in the consumer price index (CPI). Ten of the eleven countries that regularly adjust their specific tax use the CPI to determine the increase in the specific tax (Table 3.3). Countries do not impose a ceiling to the annual adjustment of the specific tax, except in Honduras where the annual increase of the specific tax cannot exceed 6%, irrespective of the actual change in the CPI.
Some countries differ from the standard CPI-indexing approach. In Colombia, the annual adjustment to the specific excise tax is, since 2019, equal to the annual growth in the CPI plus four percentage points. In Peru, the indexation mechanism has been reformed in 2020 and the specific excise tax is now indexed only with the increase in the price of cigarettes. Bolivia and Chile index their specific tax using a well-defined tax unit that is indexed itself for inflation. In Bolivia, the specific tax is indexed with the “Unidad de Fomento de Vivienda” that serves as a reference for financial operations, contracts and all types of legal acts in national currency. In Chile, the specific tax is expressed as a share of the “Unidad Tributaria Mensual” which has been implemented since 1974 to adjust all kinds of tax liabilities, fees and other penalties for inflation. No country indexes the specific tax to real income growth.
In Paraguay and Uruguay, tobacco excises are adjusted based on parameters that are not made public. Paraguay updates the ad valorem excise rate according to selected economic parameters. Starting from 2021, the ad valorem rate must be gradually adjusted aligned with the internal and external economic circumstances that the country faces. The Ministry of Finance takes the final decision to increase (or not) the ad valorem rate based on technical reports from the Central Bank and the economic team of the executive power (“Equipo Económico Nacional del Poder Ejecutivo”) that are not publicly available. In Uruguay, the specific tax is annually updated via a presidential decree without the use of an explicit parameter that determines the tax increase.
Note: Blank cells mean that there is no adjustment mechanism.
Source: National legislation listed in Annex Table 3.B.1.
3.1.5. Excise tax floors and tax caps
The objective of an excise tax floor in countries with an ad valorem excise tax is to have a minimum tax on each unit of excisable product. Ad valorem excise taxes are levied on the price of the tobacco product (see Annex 3.A), which may result in a low tax liability for products that are sold at a low price. In such settings, tax authorities may wish to set an excise tax floor, defined as a minimum amount of tax that has to be paid when a tobacco product is purchased, regardless of the tobacco product's price. The excise tax floor ensures a consistent stream of tax revenue, that a minimum amount of tobacco tax has to be paid on all tobacco products, irrespective of their price, and reduces opportunities for smokers to “trade down” and buy cheaper tobacco products rather than quit or reduce smoking (WHO, 2021[2]).
Different mechanisms exist to implement an excise tax floor. The most common approach is to set a minimum excise tax liability, which imposes a minimum amount of tax on all excisable tobacco products regardless of their price (WHO, 2021[2]). Alternatively, some countries implement a price floor (i.e. minimum legal price below which retailers are prohibited from selling tobacco products) which, in practice, is equivalent to a minimum excise tax (i.e. the ad valorem rate is applied to the minimum tax base set by the price floor). Similarly, countries can rely on a minimum ad valorem tax base.
Five LAC countries implement a tobacco excise tax floor. Five out of the twelve LAC countries that levy an ad valorem excise tax on cigarettes apply a minimum tax (Table 3.4). Brazil enforces a price floor across all States. Since 2016, a pack of 20 cigarettes cannot be sold at a price below the price floor of BRL 5. Cigarettes are taxed with a specific tax of BRL 1.5 and an ad valorem rate (66.7% on 15% of the retail price). The minimum tax is, therefore, BRL 2 (i.e. tax amount and rates applied to the minimum price) (equivalent to USD 0.4 based on the 2022 exchange rate). Argentina is the only LAC country that applies a minimum specific tax to non-cigarette products and adjusts the excise tax floor for inflation (Table 3.4).
In Costa Rica and Guatemala, the calculation of the excise tax floor is complex. In Costa Rica, the amount of the tax floor corresponds to 85% of total ad valorem indirect taxes levied on the most sold brand of cigarettes (i.e. ad valorem excise tax, the VAT and the Tax for the Rural Development Institute, Inder). Consequently, the sum of the tax liabilities derived from these three ad valorem indirect taxes cannot be lower than the tax floor (Table 3.4). This amount is updated annually through discretionary measures. Guatemala sets a minimum excise tax base for cigarettes which cannot be lower than 75% of the suggested retail price net of taxes. The minimum excise tax liability is then determined by applying the statutory 100% ad valorem rate to this minimum tax base.
Some LAC countries apply a maximum tax rate above which the current tax rate cannot be increased. In Argentina, the excise tax legislation establishes a maximum tax rate of 75% (the excise tax rate in force is currently 70%). In Paraguay a tax range is in place: the minimum tax rate is 18% (14% before the 2019 tobacco tax reform) and the maximum is 24% (20% before the 2019 tobacco tax reform) levied on the ex-factory price net of taxes (the excise tax rate in force is currently 20%). In Uruguay the excise tax rate levied on the price floor cannot exceed 72% (the excise tax rate in place is currently 70%).
Note: Specific taxes are converted into USD PPP with the implied PPP conversion rate available in the IMF World Economic Outlook Database (October 2023). Specific excise taxes have been standardized to a 20-unit pack to allow the comparison between countries with different tax bases. In Argentina, the minimum specific excise tax for RYO tobacco is levied on weight (i.e. 50 grams). To compute the specific tax for an equivalent 20-unit pack of RYO tobacco, it is assumed that the median cigarette in terms of weight contains 0.75 gram of tobacco (Gallus et al., 2014[10]). The amount of the tax floor in Costa Rica corresponds to 85% of total ad valorem indirect taxes levied on the most sold brand of cigarettes (i.e. ad valorem excise tax, the VAT and the Inder).
Source: National legislation listed in Annex Table 3.B.1; IMF World Economic Outlook Database (IMF, 2023[7]).
3.1.6. Tobacco excise revenue earmarking
Half of the 19 LAC countries allocate some or all of their tobacco excise tax revenue to particular public programs (Table 3.5). In those cases, earmarking is set by law and legally binding (i.e. hard earmarking). The most common approach is to assign a share of the excise tax revenue from tobacco products to one or several public programs. In contrast, some countries choose to allocate all their tobacco excise tax revenue. For example, Paraguay earmarks all tobacco excise tax revenue which is split across several public programs. Only Guatemala allocates all tobacco excise tax revenue to one public program.
Earmarked tobacco excise tax revenue in LAC is primarily used to finance health initiatives. Almost all LAC countries that earmark their tobacco excise tax revenue allocate a significant share to health-related funds and programs that aim at alleviating the harmful effects of tobacco use (i.e. cancer treatment and prevention) (Table 3.5). Hence, in those countries, earmarked tobacco excise tax revenue helps strengthening tobacco control measures.
Note: Categories of revenue allocation are ordered according to its relative importance in the total allocation. Blank cells mean “does not apply”. Additional indirect taxes and fees levied on cigarettes are those listed in Table 3.8. Hence, they do not include the VAT nor import duties. In Nicaragua, the State contributes to at least 10% of the budget of sport, physical education and recreation with revenues from excise on cigarettes, alcohol and soft drinks.
Source: National legislation listed in Annex Table 3.B.1 and Annex Table 3.B.5.
This section examines the design of other indirect taxes, aside from excise taxes, levied on cigarettes. These are the VAT, import duties and other indirect taxes.
3.2.1. Value added tax
The VAT base in countries in LAC is typically broader than the ad valorem excise tax base. Amongst the 19 countries included in this chapter, 14 countries include tobacco excise taxes in the VAT base; i.e., the VAT is levied on the retail price that includes the tobacco excise taxes (Chile, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru and Uruguay) (Table 3.6). Only four out of twelve LAC countries which implement an ad valorem excise tax include the VAT and other indirect taxes in its tax base; i.e., the ad valorem tobacco excise tax is levied on a retail price that includes the VAT (Brazil, Chile, Colombia and Venezuela). Amongst the countries which implement a mixed excise tax, four countries (Costa Rica, the Dominican Republic, El Salvador, Mexico) exclude the specific tax from the ad valorem tax base. As result, most countries levy the VAT on top of the tobacco excise taxes, while only a few countries follow an opposite approach and levy the ad valorem excise tax on top of a VAT-inclusive price. More information on this topic is included in Table 5.1 in Chapter 5.
While most countries levy the standard VAT rate, some countries in LAC levy an increased VAT rate on cigarettes. VAT rates imposed on cigarettes range from 10% in Paraguay to 32% in the State of Sao Paulo in Brazil (Table 3.6). Countries apply the standard VAT rate, except in Honduras and Panama where the VAT rate for cigarettes is increased by 3 and 8 percentage points, respectively. In Brazil, the State sales tax rates levied on cigarettes are also increased compared to the standard rates. However, the increased rates vary widely across States. In the case of the State of Sao Paulo, the rate levied on cigarettes is 32% (vs. 18% for the standard rate).
Note: Blank cells mean that the category does not apply for the respective country. In Brazil, the Tax on the Movement of Goods and Services (ICMS) is a state tax whose rates vary widely across states. The rate presented in this table corresponds to the ICMS’ rate in the State of Sao Paulo. In Mexico, companies located in the southern and northern provinces of the country had a reduced VAT rate of 8% until 2024 (DOF 30/12/2020).
Source: National legislation listed in Annex Table 3.B.5.
3.2.2. Import duties
The tax base for import duties levied on cigarettes is the cost, insurance, and freight (CIF) value with large differences in tax rates across countries in LAC. The tax base of import duties applied to cigarettes is the CIF value in all countries covered in this chapter (Table 3.7). Statutory rates of cigarettes’ import duties range from 6% in Chile and Peru to 67% in Mexico. In all countries, the statutory rate of import duties levied on cigarettes exceeds the import duties that apply to other imported goods and services. The exception is Chile, which implements a homogeneous import duty structure (6% rate applied uniformly to almost all the products).
In 6 out of the 19 countries, trade agreements grant preferential tax treatment to imported cigarette products. This allows the import of cigarettes at a reduced or zero rate of duty (Table 3.7). Central American countries tend to have a greater number of trade agreements that allow cigarettes to be imported with reduced or zero import duties than South American countries (Bolivia and Chile). Import duty differentiation can lead to unintended effects as the same tobacco product can have a different tax burden depending on its origin.
Note: The average import duty rate for all taxable goods and services corresponds to the simple average of the duty rates. The maximum duty rate refers to the highest ad valorem duty across all headings. A 100% import duty tax reduction implies that the import duty is zero, while a 50% import duty tax reduction implies that the standard rate is halved. Costa Rica and Guatemala have many trade agreements that establish zero-rated import duties for cigarettes, but only one in each country establishes a halved import duty rate for cigarettes.
Source: Based on WTO Tariff Download Facility (WTO, 2023[11]).
3.2.3. Other indirect taxes
Four LAC countries levy additional indirect taxes on cigarettes aside from excise tax, VAT and import duties. Those additional indirect taxes on cigarettes are all ad valorem and levied on the retail price suggested by the manufacturer or the importer (Table 3.8). The exception is the specific component of the tax for the Special Tobacco Fund (FET) in Argentina, which is calculated based on the average weighted price of cigarettes (updated each semester) divided by ARS 0.142. Also, the Customs Administration Fee (CAF) in Jamaica is specific (JMD 1 on each stick of cigarette).
The tax bases of these additional indirect taxes exclude some of the other indirect taxes levied on cigarettes (Table 3.8). In Argentina, the tax base of the Additional Emergency Tax (IAE) is tax inclusive, but the FET tax base excludes the IAE and the VAT. In Costa Rica, the tax base of the Tax for the Rural Development Institute (Inder) excludes the specific excise tax and the VAT. In Jamaica, the tax bases of the ad valorem taxes are all tax exclusive. Only in Brazil, the tax base of Programas de Integração Social e de Formação do Patrimônio do Servidor Público (PIS/Pasep) and Contribuições para os Financiamento da Seguridade Social (Cofins) are tax inclusive.
Revenue from the additional indirect taxes on cigarettes are earmarked. Revenue from the IAE tax in Argentina and the tax for Inder in Costa Rica support public programs for rural households and economic activities. The FET tax in Argentina finances tobacco farming-related initiatives. In Brazil, revenue from the PIS/Pasep and Cofins levied on cigarettes contribute to social protection funds. In Jamaica, the Environmental Levy finances programs to mitigate the environmental impact of manufacturing activities, while revenue from other fees on cigarette imports finance the customs administration.
Central governments in LAC are, in general, responsible for the design of indirect taxes that are levied on tobacco products (Table 3.9). In all countries, tobacco excise tax design falls under the responsibility of the central government through the Ministry of Finance. This is similar for the VAT, except in Brazil where sales tax rates are set at State level. Recently, the sales tax regime in Brazil has been replaced by a dual VAT. In Argentina, Brazil, Paraguay, Uruguay and Venezuela apply the Southern Common Market (MERCOSUR for its acronyms in Spanish) import tariffs.
There is no generally accepted definition of tobacco tax administration. For the purposes of this report, tobacco tax administration is defined as the range of regulations, procedures, tools and resources necessary to enforce the provisions of tobacco excise tax laws. The enforcement of the provisions of tobacco excise tax laws generally involve: i) identifying and registering tobacco taxpayers; ii) reporting and paying excise tax liabilities; iii) assessing excise tax declarations; iv) monitoring and evaluating tax compliance and enforcement (Preece, 2008[12]; OECD, 2023[13]; WHO, 2021[2]).
The availability of comprehensive information on tobacco tax administration in LAC is scarce. Publicly available information does not provide enough detail for a comprehensive analysis of the approaches and tools used by LAC countries to implement the four main tax administration tasks outlined in the previous paragraph.
However, some key features of tobacco tax administration in LAC can been identified.
Tobacco excise duties are all collected at the point of manufacture and/or importation (see also Chapter 5). In all LAC countries covered in this chapter, the tax legislation defines the tobacco manufacturer as the agent who is legally obliged to pay the tobacco excise taxes. In the case of imported tobacco products, the legal excise taxpayer is the importer. Excise duties on tobacco products have to be paid when the excisable good leaves the manufactory or the warehouse to be released for domestic consumption (see also Chapter 5 for a more in-depth discussion).
Tobacco excise duty declarations have to be filled regularly but the type of information that has to be filed tends to be limited (Annex Table 3.C.1 in Annex 3.C). Almost all LAC countries request tobacco manufacturers/importers to file a tobacco excise tax declaration on a monthly basis. Excise duty payments are generally due within the following 15 calendar days. The excise tax declaration can be made digitally in almost all countries, except in Bolivia and Honduras where tobacco excise taxpayers must present paper-based declarations to the tax authority. In most cases, the excise tax declarations ask for limited information regarding the tobacco transactions. Excise tax returns typically require information on the total value and quantity of tobacco products released for consumption during the period, but do not require taxpayers to report the names of cigarette brands, number of packs, or retail prices (except in Colombia and Mexico).
Fiscal marking of tobacco products is limited (Annex Table 3.C.2 in Annex 3.C). Only 8 out of 19 countries reported the use of fiscal marking through tax stamps or other banderols. Fiscal markings only apply to cigarettes, except in four countries where it applies also to other tobacco products. The use of a unique identifier that contains data for tracking and tracing purposes is restricted to six countries in LAC only (see also Chapter 5).
Excise tax returns are regularly assessed in most LAC countries for which there is available information (Annex Table 3.C.3 in Annex 3.C). Tax authorities routinely assess excise tax returns to ensure accuracy and completeness of declared information on tobacco transactions. In most cases, tax authorities cross-check excise tax declarations with VAT or income tax declarations. In Peru, the tax administration also uses third-party information (i.e. bank records or financial transactions) to assess excise tax returns. In the case of cigarettes, which are all imported in Peru, tax assessment is made by customs. In countries for which information is available, tax audits are common and risk analysis is used to detect potential areas of non-compliance. Some countries conduct physical controls at production or warehouse sites to compare and check volumes of tobacco products with excise tax declarations.
The implementation of the core monitoring tools to secure the tobacco supply chain is still nascent (Table 3.10, Table 3.11). Licenses are mandatory for manufacturers/importers in all LAC countries, except in Peru. However, other parts of the value chain (i.e. tobacco growing, distribution and retailing of manufactured tobacco products) are mostly out of the scope of licensing systems in LAC. Ten LAC countries have enacted a law containing provisions for the implementation of a national track and trace system, but only four countries have enforced these provisions. Brazil has implemented the first track and trace system in LAC (2008), followed by Ecuador (2017), Chile (2019) and the Dominican Republic (2020), while Panama is in the process of implementing it (Joosens, 2023[14]). Only seven LAC countries have ratified the WHO Protocol to Eliminate Illicit Trade in tobacco products that would enable countries to strengthen international cooperation in enforcing tobacco taxes (see also Chapter 5).
Source: WHO Framework Convention on Tobacco Control (FCTC) implementation database (WHO, 2021[15]); Tobacco Control Laws database (Campaign for Tobacco-Free Kids, 2020[16]); National legislation listed in Annex Table 3.B.1.
Note: Cells with “…” indicate that the information is not available. Blank cells indicate that the category does not apply. Unique identifier is a serialized unique identification marking for each package of product. These identifiers are a distinctive combination of numbers, letters or both. The representation of the identifier on the package can be human-readable (letters or numbers) or machine-readable (barcodes) (WHO, 2021[2]).
Source: WHO FCTC implementation database (WHO, 2021[15]); Annex 9.5 “Supplementary information on taxation” of the WHO report on the global tobacco epidemic (WHO, 2023[3]); National legislation listed in Annex Table 3.B.1.
In most LAC countries, tobacco control legislation provides effective regulation that strengthens the effectiveness of tobacco tax policy. The tobacco industry uses many marketing strategies aimed at lowering the impact of tobacco taxes on prices (see also Chapter 5). Some include, for instance, selling tobacco products as single stick, offering promotional discounts through reduced-price coupons or buy-one-get-one-free offers, and selling packs of cigarettes with a smaller amount of sticks compared to regular packs of 20 cigarettes (hence at a lower cost). Recently, ingredients that facilitate nicotine uptake, such as flavouring (sweeter, menthol, etc.), were sometimes added to cigarettes to keep them attractive (Krüsemann et al., 2018[17]; Erinoso et al., 2020[18]). In most LAC countries, those practices are prohibited by tobacco control legislation, except the regulation on cigarette content which is only adopted in Brazil (Table 3.12).
In some LAC countries, tobacco control legislation still falls short in addressing marketing strategies adequately (Table 3.12). In the Dominican Republic, Ecuador and Jamaica, the sale of single cigarette sticks is not prohibited. Evidence suggests that prices of cigarettes sold as sticks are not adjusted upward in response to a tobacco tax increase in order to limit the behavioural response from low-income and younger smokers (Gallien, Occhiali and Ross, 2023[19]). The Dominican Republic and Jamaica do not impose a minimum number of cigarettes per pack. This absence of regulation, together with the possibility of selling sticks of cigarettes, increase the ability of the tobacco industry to provide smokers with lower priced products compared to the conventional pack of 20 cigarettes. Promotional discounts for tobacco products are not prohibited in Guatemala, Honduras, Jamaica and Peru. Therefore, tobacco sellers might be allowed to temporarily reduce the price of their products through different promotional mechanisms to keep tobacco products affordable.
Note: Cells with “…” indicate that the information is not available. Following the WHO report on the global tobacco epidemic (WHO, 2021[4]), new tobacco and nicotine products in this report include ENDS, ENNDS and HTP. Promotional discounts for tobacco products refer to “the sale of tobacco products at a discount rate – such as through reduced-price coupons or buy-one-get-one-free offers” (WHO, 2021[2]). Regulation on cigarette content cover any restriction on the use of ingredients that give a false impression of tobacco quality and that encourage tobacco use in accordance with Article 9 of the FCTC.
Source: WHO report on the global tobacco epidemic (WHO, 2023[3]); Tobacco Control Laws database (Campaign for Tobacco-Free Kids, 2020[16]).
References
[16] Campaign for Tobacco-Free Kids (2020), Tobacco Control Laws Database, https://www.tobaccocontrollaws.org/ (accessed on 13 December 2023).
[18] Erinoso, O. et al. (2020), “Global review of tobacco product flavour policies”, Tobacco Control, Vol. 30/4, pp. 373-379, https://doi.org/10.1136/tobaccocontrol-2019-055454.
[19] Gallien, M., G. Occhiali and H. Ross (2023), “An overlooked market: loose cigarettes, informal vendors and their implications for tobacco taxation”, Tobacco Control, pp. tc-2023-057965, https://doi.org/10.1136/tc-2023-057965.
[10] Gallus, S. et al. (2014), “Roll-your-own cigarettes in Europe”, European Journal of Cancer Prevention, Vol. 23/3, pp. 186-192, https://doi.org/10.1097/cej.0000000000000010.
[8] Government of Brazil (2022), Preços e Impostos, National Cancer Institute, https://www.gov.br/inca/pt-br/assuntos/gestor-e-profissional-de-saude/observatorio-da-politica-nacional-de-controle-do-tabaco/politica-nacional/precos-e-impostos (accessed on 13 May 2023).
[6] Government of Brazil (2020), Relação dos optantes pelo Regime Especial de apuração e recolhimento do IPI, Secretariat of the Federal Revenue, https://www.gov.br/receitafederal/pt-br/assuntos/orientacao-tributaria/regimes-e-controles-especiais/cigarros-relacao-dos-optantes-pelo-regime-especial-de-apuracao-e-recolhimento-do-ipi (accessed on 13 January 2024).
[7] IMF (2023), World Economic Outlook Database, International Monetary Fund, https://www.imf.org/en/Publications/WEO/weo-database/2023/October (accessed on 13 January 2024).
[14] Joosens, L. (2023), Status of the tracking and tracing system required under the WHO FCTC Protocol to Eliminate Illicit Trade in Tobacco Products, Smoke Free Partnership, https://www.smokefreepartnership.eu/news/sfp-news/the-status-of-the-tracking-and-tracing-system-required-under-the-who-fctc-protocol-to-eliminate-illicit-trade-in-tobacco-products (accessed on 13 December 2023).
[17] Krüsemann, E. et al. (2018), “Identification of flavour additives in tobacco products to develop a flavour library”, Tobacco Control, Vol. 27/1, https://doi.org/10.1136/tobaccocontrol-2016-052961.
[13] OECD (2023), Tax Administration 2023: Comparative Information on OECD and other Advanced and Emerging Economies, OECD Publishing, Paris, https://doi.org/10.1787/900b6382-en.
[21] OECD (2023), “The OECD classification of taxes and interpretative guide”, in Global tax revenue database, OECD Publishing, Paris, https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/global-tax-revenues/oecd-classification-taxes-interpretative-guide.pdf.
[5] OECD (2022), Consumption Tax Trends 2022. VAT/GST and Excise, Core Design Features and Trends, OECD Publishing, Paris, https://doi.org/10.1787/6525a942-en.
[20] OECD (2008), OECD Glossary of Statistical Terms, OECD Publishing, Paris, https://doi.org/10.1787/9789264055087-en.
[1] Perucic, A. et al. (2022), “Taxation of novel and emerging nicotine and tobacco products (HTPs, ENDS, and ENNDS) globally and in Latin America”, Revista Panamericana de Salud Publica/Pan American Journal of Public Health, Vol. 46, https://doi.org/10.26633/RPSP.2022.175.
[12] Preece, R. (2008), “Key controls in the administration of excise duties”, World Customs Journal, Vol. 2/1, https://worldcustomsjournal.org/Archives/Volume%202%2C%20Number%201%20(Apr%202008)/08%20key_controls_in_the_administration_of_excise_duties.pdf.
[3] WHO (2023), WHO report on the global tobacco epidemic 2023: Protect people from tobacco smoke, World Health Organization, https://www.who.int/publications/i/item/9789240077164.
[15] WHO (2021), Framework Convention on Tobacco Control implementation database, World Health Organization, https://untobaccocontrol.org/impldb/parties/ (accessed on 13 December 2023).
[4] WHO (2021), WHO report on the global tobacco epidemic 2021: Addressing new and emerging products, World Health Organization, https://www.who.int/publications/i/item/9789240032095.
[2] WHO (2021), WHO technical manual on tobacco tax policy and administration, World Health Organization, https://www.who.int/publications/i/item/9789240019188.
[11] WTO (2023), Tariff Download Facility, World Trade Organization, http://tariffdata.wto.org/default.aspx (accessed on 13 October 2023).
[9] Yassin S, G. (2022), “Appendix F. Cigar Physical Characteristics” Premium Cigars: Patterns of Use, Marketing, and Health Effects, https://www.ncbi.nlm.nih.gov/books/NBK586235/.
Ad valorem excise tax: Tax on a selected good produced for sale within a country or imported and sold in that country. These taxes come in the form of a percentage of the value of a transaction between two independent entities at some point of the production/distribution chain (WHO, 2023[3]).
Affordability of cigarettes: Financial capacity of consumers to buy cigarettes, defined as the share of GDP per capita required to purchase 100 packs of 20 cigarettes of the most sold brand (WHO, 2023[3]).
Excises: Taxes levied on a limited range of defined goods at a specific stage of production or distribution (OECD, 2022[5]).
Ex-factory (producer) price: The amount receivable by the manufacturer from the purchaser for a unit of a good or service produced as output minus any VAT or similar deductible tax, invoiced to the purchaser. It excludes any transport charges invoiced separately by the manufacturer (OECD, 2008[20]).
Final (observed) retail price: Price of tobacco products charged to consumers in retail stores. Generally, the final retail price is tax inclusive.
C.I.F (Cost, Insurance and Freight) value: Value of a good delivered at the frontier of the importing country, including any insurance and freight charges incurred to that point, or the price of a service delivered to a resident, before the payment of any import duties or other taxes on imports or trade and transport margins within the country (OECD, 2008[20]).
Cross border shopping: Activity wherein private individuals buy goods abroad because of lower taxes and import them for their own consumption, without declaring them in full in order to avoid paying import duties (OECD, 2008[20]).
Differential rate (or tier): Different tax rates are applied based on one or more characteristics of the product. In the case of tobacco, the characteristics can vary, from price level to the type of tobacco leaf contained in the cigarette, the size of production volume, the packaging, among other parameters (WHO, 2021[2]).
Excise tax floor: Within an ad valorem excise tax structure, minimum amount of tax to pay irrespective of the product’s price (WHO, 2021[2]).
Import duties: Customs duties and other import charges which are payable on goods of a particular type when they enter the economic territory (OECD, 2008[20]).
Indexation: Periodic adjustment of the values based on the movement of the consumer price index (or other price index) (OECD, 2008[20]).
Mixed excise structure: Combination of specific and ad valorem excise.
Pre-tax price: Retail price of a product minus the indirect taxes levied on this product (i.e. excise taxes, VAT, import duties and other).
Specific excise tax: Tax on a selected good produced for sale within a country or imported and sold in that country. These taxes come in the form of an amount per stick, pack, per 1 000 sticks, or per kilogram (WHO, 2023[3]).
Suggested retail price: Price suggested by manufacturers to retailers to sell their tobacco products to consumers. The suggested retail price is commonly declared by the manufacturer (or the importer) to the tax administration for the computation of the excise tax liability. In comparison to the ex-factory price, which accounts for all production costs and manufacturer’s margins (as well as freight and insurance costs in the case of imported products), the suggested retail price also accounts for the distributors and retailers’ profit margins.
Taxes: Compulsory unrequited payments to the general government or to a supranational authority. They are unrequited in the sense that benefits provided by government to taxpayers are not normally in proportion to their payments (OECD, 2023[21]).
Tobacco tax burden: The share of tobacco taxes (excise tax, value added tax, import duty and any other taxes levied) in the retail price of tobacco products (WHO, 2023[3]).
Uniform rate: One rate applied across all brands of the same product type (WHO, 2021[2]).
Value added tax (VAT): Broad-based tax on final consumption by households collected - but not borne - by businesses through a staged process (OECD, 2022[5]).
Note: The legislation included in Annex Table 3.B.1 corresponds to the most recent reference text which sets the guiding principles of the excise taxes currently levied in each country.
Source: National legislation.
Note: Ad valorem tax base "EFP" means "Ex-factory price/CIF value"; "SRP" means "Suggested retail price by the manufacturer/importer"; "FRP" means "Final (observed) retail price"; “VAT” means “Value added tax”; “Other” refers to the ad valorem tax base for Roll-Your-Own (RYO) tobacco products in Colombia, which is 10% of the specific excise tax applied to RYO tobacco; blank cells mean that there is no excise tax for the corresponding tobacco product. Following the WHO report on the global tobacco epidemic (WHO, 2021[4]), new tobacco and nicotine products in this report include ENDS, ENNDS and HTP. The excise tax levied on e-cigarettes in Ecuador applies only to those containing nicotine (i.e., ENDS). Argentina, Brazil, Mexico, Nicaragua, Panama, Uruguay, and Venezuela do not levy an excise tax on e-cigarettes (ENDS and ENNDS) because their sales are banned (WHO, 2023[3]). Brazil, Mexico, and Panama do not levy an excise tax HTPs because their sales are banned (WHO, 2023[3]). In Brazil, there are two different excise tax regimes for cigarettes that taxpayers can opt for. The general regime is ad valorem only while the special regime is mixed. Because the special regime results in a lower effective tax rate, most taxpayers opt for the special regime (Government of Brazil, 2020[6]). Thus, the special (mixed) regime represents the main excise tax regime enforced for cigarettes. Specific tax for RYO tobacco products in Costa Rica and Mexico is levied by stick of tobacco products. To compute the specific tax liability by single stick of RYO tobacco, the weight of a cigarette is assumed to be 0.6811 gram of tobacco in Costa Rica and 0.75 gram of tobacco in Mexico according to national legislation.
Source: National legislation listed in Annex Table 3.B.1.
Note: Blank cells mean that there is no excise tax for the corresponding tobacco product. Following the WHO report on the global tobacco epidemic (WHO, 2021[4]), new tobacco and nicotine products in this report include ENDS, ENNDS and HTP. The excise tax levied on e-cigarettes in Ecuador applies only to those containing nicotine (i.e., ENDS). Argentina, Brazil, Mexico, Nicaragua, Panama, Uruguay, and Venezuela do not levy an excise tax on e-cigarettes (ENDS and ENNDS) because their sales are banned (WHO, 2023[3]). Brazil, Mexico, and Panama do not levy an excise tax on HTPs because their sales are banned (WHO, 2023[3]). In Brazil, there are two different excise tax regimes for cigarettes that taxpayers can opt for. The general regime is ad valorem only while the special regime is mixed. Because the special regime results in a lower effective tax rate, most taxpayers opt for the special regime (Government of Brazil, 2020[6]). Thus, the special (mixed) regime represents the main excise tax regime enforced for cigarettes. In Mexico, handmade tobacco products other than cigarettes benefit from a lower ad valorem tax rate (30.4%) against a standard tax rate of 160%, and are not subject to the specific excise tax (see Box 3.1). Specific taxes are converted into USD PPP with the implied PPP conversion rate available in the IMF World Economic Outlook Database (October 2023). Specific excise taxes have been standardized to a 20-unit pack to allow the comparison across countries with different tax bases. Specific tax in Nicaragua for non-cigarette tobacco products is levied by kilogram. To compute the specific tax for a 20-unit pack, the median weight of cigars is assumed to be 14.1 grams while for cigarillos the median weight is 2.8 grams (Yassin S, 2022[9]). Specific tax for Roll-Your-Own (RYO) tobacco products in Colombia and El Salvador is levied by gram. To compute the specific tax for an equivalent 20-unit pack of RYO tobacco, it is assumed that the median cigarette in terms of weight contains 0.75 gram of tobacco (Gallus et al., 2014[10]).
Source: National legislation listed in Annex Table 3.B.1; and IMF World Economic Outlook Database (IMF, 2023[7]).
Note: Blank cells mean that there is no excise tax floor for the corresponding tobacco product. The following countries are not presented in this table as they do not have excise tax floors in place: Bolivia, Chile, Colombia, the Dominican Republic, Ecuador, El Salvador, Honduras, Jamaica, Mexico, Nicaragua, Paraguay, Peru, Uruguay, and Venezuela. Specific taxes are converted into USD PPP with the implied PPP conversion rate available in the IMF World Economic Outlook Database (October 2023). Specific excise taxes have been standardized to a 20-unit pack to allow the comparison across countries with different tax bases. To compute the specific tax for an equivalent 20-unit pack of RYO tobacco in Argentina, it is assumed that the median cigarette in terms of weight contains 0.75 gram of tobacco (Gallus et al., 2014[10]). The minimum specific tax in Costa Rica is equivalent to 85% of the indirect tax liabilities of the most sold brand, including the ad valorem excise tax, the VAT and the Inder. In Brazil, the minimum excise tax payable per 20-unit pack is calculated by applying the specific and ad valorem rates of the special excise tax regime (BRL 1.5 + 66.7% levied on 15% of the retail price) to the minimum legal price of BRL 5.0 for a 20-unit pack of cigarettes.
Source: National legislation listed in Annex Table 3.B.1; and IMF World Economic Outlook Database (IMF, 2023[7]).
Note: Blank cells indicate that the category does not apply.
Source: National legislation.
Note: Cells with “…” indicate that the information is not available. Blank cells indicate that the category does not apply. Excise tax returns are considered to include detailed information on tobacco transactions when taxpayers are required to provide information that goes beyond the total value and/or volume of tobacco transactions.
Source: National legislation listed in Annex Table 3.B.1.
Note: Cells with “…” indicate that the information is not available. “Other tobacco products” refers to cigars, cigarillos and Roll-Your-Own (RYO) tobacco products. Tax stamps are labels or marks placed on certain types of consumer goods to show that the applicable excise tax has been paid (WHO, 2021[2]). In Mexico, handmade tobacco products other than cigarettes do not require the purchase and affixing of tax stamps.
Source: Annex 9.5 "Supplementary information on taxation" of the WHO report on the global tobacco epidemic (WHO, 2023[3]).
Note: Cells with “…” indicate that the information is not available.
Source: Replies from the OECD questionnaire sent to LAC countries in August 2023.