EXPERTS have pushed for risk-proportionate taxes on smoke-free nicotine products as a way to curb illicit tobacco trade, noting that tax systems should encourage smokers to move away from cigarettes without pushing consumers toward unregulated markets.
They also noted that differentiated tax rates for products such as vapes, heated tobacco products and nicotine pouches can help reduce smoking rates while supporting government revenues. "Countries that have significantly lowered their smoking rates implement simplified, risk-proportionate tax systems that influence consumers to move away from combustible cigarettes and switch to reduced-risk alternatives,” Professor Ashok Kaul said.Kaul added that a differential in tax rate between cigarettes and alternatives is good, as "It encourages switching.”
Kaul served as a delegate for Germany at the Organization for Economic Cooperation and Development (OECD), focusing on international tax policy reform.
He also acted as a lead scientist on Double Taxation Agreements for the German Ministry of Finance.
Kaul pointed to Sweden’s risk-proportionate tax model, keeping taxes differentiated on smoke-free alternatives and cigarettes, noting that in just 15 years, smoking rates fell from 15 percent to 5.3 percent, with Sweden poised to become the first smoke-free nation. He also said tobacco-related deaths in Sweden are far below the European average, and Swedish men have among the lowest rates of smoking-related disease in the European Union. "Many Swedes stopped smoking, but even more switched [to smoke-free alternatives]. And now Sweden has, among the European countries, the lowest lung cancer rate by far. So, you can see what good policies can achieve," Kaul said.He stressed that risk-proportionate taxes on smoke-free alternatives combined with strong law enforcement can spur innovation, prompting consumers to move away from cigarettes while undermining illicit trade. "Industry innovation is only possible if the illicit market is controlled. When innovative smoke-free nicotine products are available in the legitimate market, more consumers will be encouraged to switch to less harmful alternatives,” Kaul noted. Meanwhile, Dr. Arthur Laffer, founder and chairman of Laffer Associates, an economic research and consulting firm, said governments should adopt data-driven taxation policies to strike a balance between fiscal sustainability and public health goals.He said the Philippine government should adopt data-driven taxation policies and balance sustainability with public health goals.Laffer emphasized that smoke-free nicotine products are crucial in reducing smoking-related harm, providing less harmful options for people who struggle to quit through approved therapies. "Set a lower tax for such products to encourage more smokers to switch to less harmful alternatives,” Laffer, a former member of president Ronald Reagan’s Economic Policy Advisory Board, said. Laffer warned that annual increases in excise tax rates in the Philippines have led to declining government revenues and a rise in illicit tobacco trade. Research from the University of Asia and the Pacific (UA&P) shows a clear link between stricter tobacco laws and the growth of the illicit cigarette trade in the country. "The data strongly suggest that the Philippines has gone too far in increasing tobacco tax rates. If you overtax a product, you lose control of the market, you lose revenues, you have more people buying illicit cigarettes,” Laffer noted. He noted that the exact situation unfolded in Ireland, where steep increases in annual tobacco excise taxes resulted in a sharp drop in government revenues, coinciding with a spike in customs seizures of illicit cigarettes.
