Krasovsky K (2012) Tobacco taxation policy in three Baltic countries after the EU accession
Tobacco taxation policy in three Baltic countries after the EU accession
BACKGROUND: Estonia, Latvia and Lithuania joined the EU in 2004 and had to increase tobacco excise rates. The aim of the paper is to explore the impact of tax policies on tobacco consumption, revenue and tobacco market in the Baltic countries.
METHODS: Data on tobacco sales, tax rates, prices, revenues, and smoking prevalence were taken from databases and reports. Tobacco affordability index was calculated using data on prices and GDP.
RESULTS: Tobacco taxation policy had three similar stages in Baltic countries: (1) In 2004-2007, tax rates increased slowly and cigarettes became more affordable in years of economic boom. Tobacco consumption and smuggling out of Baltic countries was on the rise, which caused increase of sales and revenues. (2) In 2008-2009, Baltic countries had to hike excise and VAT rates in years of economic recession, which caused sharp decline of cigarette affordability and resulted in large decline of consumption and sales and some excise revenue downfall in 2009-2010; however, all countries had higher revenues in 2010 than in 2007. (3) In 2011, economic situation improved and tobacco sales and revenue increased.
The tobacco taxation policy in Baltic countries in 2004-2011 resulted in: (1) decline of total (licit + illicit) annual cigarette consumption by 30% both in Latvia and Lithuania, and by 10% in Estonia; (2) decline of daily smoking prevalence by 10-20%; (3) decline of the out-of-country smuggling; (4) almost no changes in volumes of smuggling into Lithuania and Estonia; (5) three-fold increase of the annual tobacco revenues in three countries combined.
CONCLUSIONS: Decrease of tobacco affordability caused by tax hikes and economic recession was the key factor of tobacco consumption decline. Tobacco tax hike is a win-win policy, while in years of economic boom it has more fiscal benefits and in years of economic recession it has more public health benefits.
KEYWORDS: tobacco; excise tax; Estonia; Latvia; Lithuania; Baltic countries; affordability; smoking prevalence; tobacco consumption; tobacco smuggling.
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