Undermining Government Tax Policies: Common strategies employed by the tobacco industry in response to tobacco tax increases

Abstract

Introduction: Effective tobacco tax increases reduce tobacco consumption, threatening the profitability of the tobacco industry. In response, the tobacco industry employs strategies to negate or minimize the full effects of tobacco tax increases. Knowledge of these strategies can assist governments in setting effective policies to collect the full amount of tax revenue and to curb tobacco use. Methods: Country level data on excise tax rates and revenue, retail prices, volume of cigarette removals and sales were obtained from governments and statistical offices, non-governmental organizations and academic departments. Results: Seven common strategies are identified: stockpiling, changing product attributes or production processes, lowering prices, over-shifting prices, under-shifting prices, timing of price increases, and engaging in price discrimination and/or offering promotions. Each strategy is described in terms of the motivation for their employment, the consequences for tobacco use and tax revenue, and measures to counter them. County case studies illustrate the successful execution of the strategies and possible government responses. Conclusion: The tobacco industry, left unchecked, employs strategies that reduce the impact of tobacco tax increases on its profit, undermining tobacco control efforts and government revenue. Many of the Tobacco industry’s responses to tobacco tax increases are predictable, since they are being employed systematically across countries. Governments can and should adopt appropriate measures to eliminate or reduce tobacco industry manipulation. This requires systematic data collection in order to monitor tobacco industry behavior.