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The Spanish tobacco tax loopholes and their consequences
 

The Spanish tobacco tax loopholes and their consequences

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Ángel López-Nicolás ...

Ángel López-Nicolás
Grupo de Investigación en Economía, Políticas Públicas y Salud, Universidad Politécnica de Cartagena

Belén Cobacho
Centre de Recerca en Economia i Salut, Universitat Pompeu Fabra

Esteve Fernández
Institut Català d’Oncologia

ICO-WHO Symposium 2012

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    The Spanish tobacco tax loopholes and their consequences The Spanish tobacco tax loopholes and their consequences Presentation Transcript

    • Ángel López-Nicolása,b Belén Cobachoa Esteve Fernándezca Grupo de Investigación en Economía, Políticas Públicas ySalud, Universidad Politécnica de Cartagenab Centre de Recerca en Economia i Salut, Universitat Pompeu Fabrac Institut Català d’Oncologia ICO-WHO Symposium 5th June 2012
    •  EU tobacco tax directives require the application of a minimum tax on cigarettes regardless of brand or price category as of 2011 Some EU member states started applying such tax earlier ◦ Among them, Spain as of 11th February 2006 What evidence is there on the effects of the tax in Spain? What conclusions might we draw for tobacco tax policy in general?
    •  Traditionally based on ad valorem taxes ◦ Encourages price differentiation Ban on advertising in 2006 unleashed cigarette price war well in advance ◦ Most intense in late 2005 and 2006 ◦ The tobacco control community called for a minimum tax ◦ Phillip Morris also urged the government to apply minimum tax (in order to protect its premium brands) First applied in February 2006, revised upwards several times since
    • Distribution of cigarette prices in Spain (2002-2011) Packs of 20 (at 2011 prices) 5 4€ per pack 3 2 1 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
    •  As expected, the minimum tax lifted the bottom end and compressed the cigarette prices distribution, but… Smoking also depends on what happens to other tobacco products ◦ Fine cut tobacco remained taxed on an ad valorem basis alone until June 2009 ◦ And even after then it bears a lighter tax burden in terms of “cigarette equivalents” ◦ Cigars and cigarillos remain taxed on an ad valorem basis to date
    • Price of tobacco products in Spain (2005-2011) Real price index; 2005=100150100 50 2005 2006 2007 2008 2009 2010 2011 Cigarettes Cigars and cigarillos Fine cut tobacco Pipe tobacco
    • Price of tobacco products in Spain (2005-2011) Price of a 20 cigarette pack or equivalent (at 2011 prices)10 8 6€ 4 2 0 2005 2006 2007 2008 2009 2010 2011 Cigarettes (pack of 20) Cigars or cigarillos (20 units) Fine cut tobacco (20 rolls at 0.7 gr. per roll)
    • Structure of the demand for tobacco products Spain 2005-2011 Market share in 2011 (%) Cigarettes 91.1Cigarillos & Cigars 3.3 Pipe tobacco 0.4 Fine cut tobacco 5.1 -4 -2 0 2 4 Change in market share over 2005-2011 (%)
    • Prevalence of daily smoking (National Health Surveys) 2006 2009 Difference (not statisticallyMen significant) Spain (excl. Canary Islands) 35.09 35.36 0.27Women Spain (excl. Canary Islands) 23.84 24.49 0.65
    •  Minimum taxes have avoided ultra cheap cigarettes However, there is no evidence suggesting a reduction in smoking prevalence The explanation appears to be related to downtrading towards fine cut tobacco
    •  The latest tobacco tax reform in Spain (31st March 2012) enacts exactly what an industry spokesman demanded publicly weeks earlier ◦ A reduction of the ad valorem tax ◦ An increase of the specific tax ◦ No change for fine cut tobacco The public health community should address this state of affairs and ◦ Demand an equalisation of the tax burden of cigarettes and fine cut tobacco ◦ Watch closely the evolution of cigars and cigarillos
    •  The EU tobacco tax directive does not require Member States to apply a minimum tax on quantity for fine cut tobacco The directive consecrates the price-product segmentation of tobacco markets across the EU National governments must legislate beyond the EU minimum requirements in order to avoid the creation and persistence of the type of loopholes detected in Spain