Tobacco Taxation in Turkey: Evidence from Detailed Brand Level Monthly Price and Sales Data M. Utku ÖZMEN Economist Central Bank of Turkey World Bank Group Tobacco Taxation Conference, Washington D.C., 18-19 April 2017 The views expressed here do not necessarily represent those of the Central Bank of Turkey.
The discussions in this presentation are based on: Atuk O, Özmen MU., "Firm strategy and consumer behaviour under a complex tobacco tax system: implications for the effectiveness of taxation on tobacco control", Tobacco Control 2016;0:1–7. doi:10.1136/tobaccocontrol-2015-052808 A longer version: Atuk O, Özmen MU., "Firm Strategy, Consumer Behavior and Taxation in Turkish Tobacco Market", Central Bank of Turkey Working Papers, 2015.
Tobacco Products Market: Different Parties, Contrasting Incentives Fiscal Authority (cares for tax revenue and its stability) Health Authority (cares for reducing tobacco consumption) Economic Policy Authority (may care for production) Firms (care for increasing consumption, lobbying activity) Non-profit organizations (care for reducing consumption)
Sequential Market Formation Fiscal Authority sets the tax combination: Ad valorem and/or specific Firms determine final sales price: Product differentiation; Cigarettes for different price segments Consumers choose: What segment to consume How much to consume Final sales amount and final tax revenue are determined.
Formulation of Cigarette Price in Turkey Source: Atuk and Özmen (2016), Tobacco Control
Evolution of Special Consumption Tax in Turkey Current rates: Ad valorem: 65.25 %; specific =0.3 TL/pack Source: Atuk and Özmen (2015), CBRT Working Paper
Sales Price (TL) Current prices: ~ 12.5 / 10.5 / 8 TL. Source: Atuk and Özmen (2016), Tobacco Control
Price Gap between Segments (TL) Source: Atuk and Özmen (2016), Tobacco Control
Total Sales Source: Atuk and Özmen (2016), Tobacco Control
Sales Share (%) Source: Atuk and Özmen (2016), Tobacco Control
Price Elasticity of Demand Source: Atuk and Özmen (2016), Tobacco Control
Price Elasticity of Demand Source: Atuk and Özmen (2016), Tobacco Control
Lessons from the Turkish Case based on Atuk and Özmen (2016) Tax increases are very effective on reducing the consumption of Economy and Medium segment cigarettes Though, the availability of cheaper alternatives limits the effect of tax increases on consumption Demand for Premium segment cigarettes is price inelastic Relatively rich consumers are not induced by price hikes Thus, non-price measures for preventing consumption may be more effective on such consumers