Conceptually Shocking, But Economically Stimulating

Tia Belau Editorial, June 27, 2013 —-

“It’s conceptually shocking, but economically stimulating,” said Del. Lee after the conclusion of the 2-and-half day tobacco taxation workshop that ended yesterday. Del. Otobed was referring to the tobacco tax simulation model, in which one of the three scenarios called for a $3.00 increase with 10% gradual increase after that to bring Palau’s tax rate to a World Health Organization (WHO) recommended level.

The scenario that Del. Otobed was talking about is shown to be the most effective tax rate in which the simulation model reveals that tax revenue increases relative to the increase in tobacco taxes, while a significant drop in tobacco consumption occurs.

Data from the Palau Youth Tobacco Survey of 2009 revealed that 50.3% of the youth are current tobacco users. 40.1% of the 13-5 years old age group currently smoke. Over half the youth chew betelnut, and those who chew 76.2% add cigarettes to their chew.

Since 2001,current smoking has nearly doubled, and the use of smokeless tobacco has risen nearly 5 times. Tobacco tax increases directly benefit governments through increased revenues.

Every nation with an efficient tax system that has significantly increased its cigarette tax has enjoyed substantial increases in revenue, even while reducing smoking.

Current tax rate for a pack of 20 cigarettes is specific at $2.00, so for a $3.50 pack of cigarettes, the tax is 57%.

With 150% ad valorem tax rate of loose leaf tobacco is being under taxed. Information from the workshop revealed that one pack of 20 cigarettes weighs for .017 kilogram. To use the per pack weight as an equivalent weight for loose leaf tobacco, the government is losing an estimated revenue of over $1.4 million from tobacco tax. That is the imported loose leaf tobacco is equal to over 700,000 packs of cigarette, and which based on the current tax law, only $60,000 dollars are being collected instead.

It is a fact that raising tobacco taxes is the single most effective way to reduce tobacco use and save lives. Higher tobacco taxes target our most vulnerable populations, preventing youth from starting and helping low-income population quit. Higher tobacco taxes increase government revenues, even reduced consumption. And increased revenue from taxes can provide the government with funds for other tobacco control efforts, further reducing tobacco use and saving lives.

(The editorial is an updated version of its print edition)

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