Is cigarette tax increase necessary?

Catsmoke-small The government just announced yesterday they will increase cigarette excise tax by about 15% starting next year. Interesting thing I’ve been noticing about anti-smoking activists’ stance with regard to cigarette taxation:

Cigarette tax in Indonesia is among the lowest in the world, making it easy for the poor and the young to smoke

And taxing it up to the roof will force smokers to quit and make them as well as everybody else healthier, this line of reasoning goes. And yet,…

Cigarette smoking is addictive because nicotine is an addictive substance

But if smoking is so addictive, how does increasing cigarette price make smokers quit rather than turn them into thieves? After all, I don’t think I have heard of a drug addict quitting for financial reasons. Perhaps nicotine is simply not as addicting as it is cranked up to be, since smokers appear to be reasonably responsive to economic (dis-)incentives like consumers of most other products.

Here are some of the usual points that anti-smoking activists have frequently brought up in relation to smoking and cigarette tax:

  • Smoking is an addiction that somebody takes up, basically, without their consent
  • Government should increase cigarette tax to the max to get smokers to quit

The two just don’t add up to me. And another crucial point they continue to bring up, as this article points out is…

  • Most smokers are poor

So if I am getting this right, they actually want the poor to pay disproportionately higher tax? Isn’t that what regressive taxation is all about?

Honestly though, it is not true that cigarette is too cheap in Indonesia, at least not to most Indonesians. Anti-smokers will say the tax rates here, at 37.5-55% of the price of a pack of cigarettes are too cheap in comparison to those in other countries. However, the rates don’t actually say much about how affordable actual cigarettes are to the locals.

There might be several ways to identify the affordability of cigarette, but obviously not by simply measuring how much of its price goes to the state coffers. One would be by measuring how much labor is required to buy it, which this paper tries to do (see page 5). Here’s a reproduction of data for selected countries, including Indonesia, from the paper:

Country City Minutes of labor
Marlboro Local brand
Australia Sydney 21 15
USA Chicago 18 18
Houston 17 15
UK London 40 40
Thailand Bangkok 35 23
Singapore Singapore 43 40
Indonesia Jakarta 62 62

From this perspective, cigarette is actually about one and a half times as expensive to the average Indonesians than it is to the average Briton, two times relative to the average Thai and three times as compared to the average Australian.

Another way would be to identify the cost of cigarettes relative to per capita income, which is described in this paper. Again, from this perspective, the price of cigarette in Indonesia is not among the lowest in the world, as it takes up a greater share of most people’s income here than in higher income countries.

Anyway, to answer the question posed by this post’s title, I guess it depends on how effective it is to actually reduce smoking by increasing cigarette price. But as far as taxation goes, I’m finding it hard to agree with imposing any tax that puts a disproportionate burden on the poor.

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