Presentation on theme: "Kidane Asmerom and Teh wei-Hu"— Presentation transcript:
1 Kidane Asmerom and Teh wei-Hu The Demand for Cigarette in Tanzania and its Implication on Tobacco Taxation PolicyPresented byNgeh Ernest TingumCo-authors:Kidane Asmerom and Teh wei-Hu
2 BackgroundTobacco production and cigarette consumption ... one of the major health issues in the world and Tanzania not an exception2012 estimates (WHO, 2012)6 million deaths yearly8 million by 2030tobacco prevalence in Tanzania25 to 64 years is 23%.13 to 15 yearsMale 3.8%Female 0.4%EA regionMale 29%Female 4 %
3 Smoking causes huge economic burden to the society; especially for a developing African country such as Tanzaniato control diseases and death from tobacco use Tanzania signed a pact to control tobacco production and cigarette consumption in However, government role not effective to date.One of the most effective ways of controlling the high rate of cigarette consumption is to raise tobacco excise taxes (Chaloupka et al., 2000).increasing excise tax on tobacco...not only reduce consumption but may also help generate more revenue (WHO, 2010).Higher cigarette prices...reduce or quit smoking as well as initiation rate.
4 Objectives of the study estimate the demand function (elasticities)impact of excise tax on cigarette smoking participation rate and on the amount of consumption among smokerssimulation exercises on the impact of various excise tax rates on tax burden and on government revenue
5 Brief Empirical Literature Review The price of cigarette has proven to be one of the major determinants of tobacco consumptionusing both time series and cross section data(Chaloupka and Warner, 1999; Berg and Kaempfer, 2001; Nasser, 2003 and WHO, 2010)Price changes affect affordability through limited income; it also affects decision on whether smoke or notmost common form of cigarette tax is the ad volerum tax levied on packs of cigaretteThe rationale for using this form of tax is that incurs low administrative costs (WHO, 2010)smoking participation elasticity ranges from for the poor to to the high income group suggesting that the poor react more to price changes
6 Methodology and models Specifications Two part model (Hu et al, 1995; Mao et al., 2007)Equation 1: smoking participation equationEquation 2: smoking intensity equationis a binary variable which equals 1 if person currently smokes and 0 otherwiseprobability that person currently smokescigarettes smoked per month conditional upon smoking for personis the regional price of cigarettes faced by personis a vector of other explanatory variables including gender, age, education, residence, annual income proxied by expenditureare random error terms.
7 The overall demand for cigarette for person i is given as follows Total price elasticity of the overall demand for cigarettes is obtained asis the total elasticityis the price elasticity of smoking participationthe price elasticity of smoking intensity conditional upon current smokersthe population mean of current smoking prevalenceprice coefficient in Equation 1 and is the price coefficient in Eqn 2
8 Data Description and Summary Statistics Tanzanian household survey (Tanzania 2008).
9 The overall mean price per stick is 63.36 Tshs. The estimated mean price among the high expenditure is the highest (67.18)smoking prevalence rate is percent. Highest among the low income group (16.40)The smoking intensity is 7.08 sticks of cigarettes per day. Highest among the poor (7.81)Per capita expenditure is estimated to be 1.33 sticks per day.
10 Effect of price on smoking participation and intensity Two part model - the participation which is based on the Logit model (eqn 3) and the intensity which is based on OLS (eqn 4).*, ** and *** indicate significance at 10%, 5% and 1% respectively.
11 Total elasticityAn estimate of total elasticity is based on equation 4The std error of the total elasticity (eqn 5) is also estimated which enable to estimate CITotal price elasticity for all income groups is Thus, a 10% increase in the price of cigarette leads to a 17.32% decrease in per capita cigarette consumptionFor the poor, a 10% increase in the price will lead to a 6.69 percent decreaselow income group appear to respond less to price changes than the high group
12 Effect of tax increase on the number of smokers, on cigarette consumption and tax revenues smoking prevalence rate before tax increase while per capita consumption was 1.33 cigarettes per day or packs per yearTotal cigarette consumption is 80.8 million packs per year , tax revenue of billion Tshs using at adult Tanzanian population of 22 millions and adult smokers of 3.33 million (WHO, 2012).
13 Imposing a 10 percent increase in the price per pack Increase in cigarette tax price per pack will be Tanzanian shillings smoking prevalence will be reduced toper capita consumption will be reduced to 20.06, total number of adult smokers will be reduced to 3.28 milliontotal annual cigarette consumption will be reduced to 65.8 million and tax revenue will increase to billion shillingsthe number of smokers will be reduced by 0.05 million (50,000)Cigarette consumption will be reduced by 4.21 million packs and total tax revenue will increase by 1.37 billion Shillingschanges are substantial as the tax rate moves from 5 percent to 10 percent compared to the movement from 15 to 20 percent
14 Changes in Cigarette Consumption and tax burden by expenditure groups The pre tax estimates are based on the prevailing tax rate of percentThe overall current cigarette tax rate per pack is shillings per pack. The corresponding tax for the poor is shillings and systematically increases across the expenditure/income groups
15 Conclusionadult cigarette smoking prevalence rate of Tanzania which is 15.75% as being lower than the national averages of other countrieslittle variability among the four expenditure groupsThe prevailing excise tax rate on the price of cigarette is only 36.67% much lower than the 70.0% rate suggested by WHOIn spite, cigarette smoking participation as well as the tobacco intensity estimates show that Tanzanians tend to react to cigarette price increase in the desired directionThe elasticity coefficients appear to be much higher than the corresponding values in Egypt, South Africa and China.
16 Based on the simulation results; an increase in tax rates will have a modest reduction on the number of smokersButa substantial decrease in annual cigarette consumption as well as increase in tax revenueConsumers’ response to tax increase appears to show much variability when estimated by expenditure groupsAs expend increases, tax rate per pack also increases. high expend groups appear to smoke high priced cigarettesHowever, the tax burden seems to be high for the poor
17 United States National Institute of Health THANKS YOUStudy supported byUnited States National Institute of Health