1. ACCELERATING PROGRESS ON EFFECTIVE TOBACCO TAX POLICIES IN MONTENEGRO
4/6/2019
ACCELERATING PROGRESS ON EFFECTIVE TOBACCO TAX POLICIES IN MONTENEGRO

2. Our Team Mirjana Čizmović, PhD Senior researcher Mugoša Ana, PhD
Project Director
Faculty of Economics,
University of Montenegro
Milenko Popović, PhD
Project Coordinator
Tanja Laković, PhD
Senior researcher
ISEA – Institute for Socio- Economic Analyses &
Montenegro Business School, Mediterranean University
ISEA – Institute for Socio- Economic Analyses &
Montenegro Business School, Mediterranean University
Faculty of Economics,
University of Montenegro

3. National Study outline01
Macroeconomic indicators 02
Tobacco market – supply and demand 03
Tobacco taxation and pricing policies 04
Price elasticity of tobacco products

4. Macroeconomic indicators
ACCELERATING PROGRESS ON EFFECTIVE TOBACCO TAX POLICIES IN MONTENEGRO

5. Macroeconomic indicators – Real sector
4/6/2019
Upper middle income country
Macroeconomic indicators – Real sector
Real sector
Indicators
2012
2013
2014
2015
2016
2017
GDP in current price
(mil EUR)
3,181
3,362
3,458
3,655
3,954
4,237
GDP real growth in %
-2,7
3,5
1,8
3,4
2,9
4,3
GDP per capita
5.126
5.412
5.561
5.826
6.354
6.833
GDP per capita PPP (international dollar)
13,990
14,666
15,353
16,123
17,022
18,765
CPI annual growth at the end of the period in %
5,1
0,3
-0,3
1,4
0,9
1,9
Number of employees
201,000
201,900
216,300
221,700
224,200
229,300
Unemployment rate
19.7
19.5 18
17.6
17.7
16.1
Average monthly gross wage
727
726
723
725
751
765
Average monthly net wage
487
479
477
480
499
510
FDI mil €
461,6
323,9
353,9
619,3
371,6
474,3
FDI (% GDP)
14.5
9.6
10.2
16.9
9.4
11.2
Population:
(2011)
Surface area:
13,812 km2
Capital city:
Podgorica
strives to join EU by 2025
Average inflation rate was 2.4%
3.1% in 2018

6. ACCELERATING PROGRESS ON EFFECTIVE TOBACCO TAX POLICIES IN MONTENEGRO
Tobacco market
ACCELERATING PROGRESS ON EFFECTIVE TOBACCO TAX POLICIES IN MONTENEGRO

7. Level and Dynamics of Tobacco Growing and purchase (1992-2017)
Tobacco market - supply
Level and Dynamics of Tobacco Growing and purchase ( ) .

8. Tobacco market - supply
Level and Dynamics of Cigarettes production ( ) and employment ( ) .
Cigarettes production
Employment in manufacturing

9. Import and Export of tobacco products (2005-2017)
4/6/2019
Tobacco market - supply
Import and Export of tobacco products ( ) .

10. Significant decrease of prevalence comparing 2000
Tobacco market – Demand
Significant decrease of prevalence comparing 2000
Smoking prevalence (2000, 2008, 2012, 2017)
Increasing trend of adult smoking prevalence for 5%
No of cigarettes used daily
2012
67% of active smokers 20 or more cigarettes
2017
50% active smokers to 20 cigarettes
33.4% smokes
more than 20 cigarettes

11. Smoking prevalence adults, young (ESPAD 16 years and GYTS 13-15 year)
Tobacco market – Demand
Smoking prevalence adults, young (ESPAD 16 years and GYTS year)

12. Consumption Consumption Dynamics
(number of used excise stamps ) Yearly value of retail sales in EUR

13. Consumption per adult smoker and WAPC dynamics

14. Regulatory framework - Tobacco taxation and pricing policies
ACCELERATING PROGRESS ON EFFECTIVE TOBACCO TAX POLICIES IN MONTENEGRO

15. 4/6/2019
Strategies
National Strategy for Sustainable Development until 2012
National Strategy for Sustainable Development until 2030
Healthcare Policy of Montenegro by 2020
National Strategy for Tobacco Control
Strategy for Prevention and Control of Chronic Non-communicable Diseases
Strategy for Healthcare Development in Montenegro
National Strategy for Eliminate Illicit Trade in Tobacco Products
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Law on Healthcare Inspection
Law on Fees for Access to Services of General Interest and for the Use of Tobacco Products, Electric –Acoustic and Acoustic Devices
Law on Healthcare
Law on Limiting Use of Tobacco Products
Law on Excise Taxes
Law on Fees for the Use of Tobacco Products, Electric- Acoustic and Acoustic Devices
Law on Tobacco
Law on Value Added Tax
Law on Ratification of the Framework Convention of the World Health Organization on Tobacco Control
Law on Ratification of The Protocol to Eliminate Illicit Trade in Tobacco Products
Legislation

16. Law on Limiting Use of Tobacco Products
Regulatory framework
Laws
2001, 2005, 2008, 2009, 2010, 2011,
2012, 2013, 2014, 2017, 2018
Law on Excise
Law on Tobacco
(2004, 2008, 2011, 2015)
Law on Limiting Use of Tobacco Products
(2004, 2011, 2016) .
The Law on Fees for Access to Services of General Interest and for the Use of Tobacco Products, Electric-Acoustic and Acoustic Devices
(2012, 2013, 2015)
The Law on Fees for the use of Tobacco products, Electric-Acoustic and Acoustic Devices
(2017)

17. Specific and Ad valorem statutory excise rates on cigarettes in
Montenegro
Increase of excise taxes until 2018
From 1st september changes in excise calendar – decrease of specific excise from 40 to 30 euros
Excise policy for : increase of specific excise yearly by 3.5 euros, while decreasing Ad valorem by 1.5%
Specific excise - 30 euros on 1000 cigarettes (36,67% of WAPC)
Ad valorem - 32%.  
Overall or minimal excise is 63,5 euros on 1000 cigarettes (EU directive: 90 euros).
Overall or minimal excise per pack of cigarettes is euros (EU directive 1,8 euros).
WAPC 2.1 euros in MNE – EU average 4.8 euros.

18. Pricing policy – impact of taxes on price
Tax burden in price : from 43.8% to 87.43% ( )
Tax burden currently: 77.9%
Tax burden in price of cheapest cigarettes (2 euros per pack): 79.35%
Tax burden in price of the most expensive cigarettes (3.7 euros per pack): 65.56%

19. Price elasticity of tobacco products
ACCELERATING PROGRESS ON EFFECTIVE TOBACCO TAX POLICIES IN MONTENEGRO

20. Research objective
The primary objective of this part of the study is to estimate the price elasticity of cigarette demand, as an important input for a tax policy targeted to reduce tobacco consumption.
We conducted two analyses based on different level of data aggregation:
Estimation of price and income elasticity of cigarette demand using a sample of available annual time series of secondary aggregate economic data related to the tobacco market in Montenegro from 2001 to 2017 (macro - level analysis).
Estimation of price and income elasticity of cigarette demand based on the Household Budget Survey (HBS) data for years from 2006 to 2017, provided by Statistical Office of Montenegro - Monstat (micro-level analysis).

21. Macro analysis – time series
Results
Results of the macro analysis indicate that the value of price elasticity in long-run is –0.68, while price elasticity for the short-run is estimated in a range from – 0.46 to
This means that other things equal, 10% increase in price will lead to a 6.8% decline in cigarettes quantity demanded in long-run.
Empirical results suggest that in the long and short run in Montenegro the demand for cigarettes is affected by changes in prices and that this responsiveness is in range with the results obtained in similar researches done for low and middle-income countries

22. Micro analysis – HBS
As a theoretical and methodical foundation, we used Deaton’s (1988) demand model and Household Budget Survey (HBS data) from 2006 to 2017 to estimate the elasticity of cigarettes demand in Montenegro exploiting time and spatial price variation.
The total sample for the regression analysis that includes households that reported expenses on cigarette consumption amounts to 5,775 households.
The data from the survey are broken down by household characteristics, such as income, socio-economic characteristics, size and composition, and municipality.
Regional variations

23. Micro analysis – HBS Results
The results indicate that both unit values and budget shares show considerable regional variation in Montenegro.
Households in the North Region paid the lowest prices of cigarettes, followed by households in the Central Region, while the households in the South Region paid the highest price.
The lower unit value is associated with larger households, as well as households with more women and elderly people. The education had no effect on the unit value.
Households with higher levels of total expenditure and households with a lower level of mean education spend a lower share of their budget on cigarettes. Conversely, smaller households and households with higher shares of men and adults spent a larger share of the budget on cigarettes.

24. Micro analysis – HBS Results
Price elasticity of the cigarettes consumption
-0.619
total expenditure elasticity of the cigarettes consumption
0.232
Estimated price elasticity of demand for cigarettes among the smokers is negative, statistically significant, and amounts This means that if cigarette prices in Montenegro increase by 10%, the quantity demanded of cigarettes will decrease by 6.19%.
The estimated value of total expenditure elasticity is positive and amounts This means that 10% higher total expenditure among the households which consume cigarettes is associated with 2.32% higher demand for cigarettes.
These results are in line with previous estimates in low- and middle-income countries.

25. Conclusion
Results of the estimation indicate a price elasticity of cigarettes ranging from to –0.68, depending on the methodology and sample used.
The results of this research confirm that an increase in tobacco excise taxes will lead to a decrease in tobacco products consumption
Research also points out that an increase in income could, to a certain extent, neutralize the effects of price increases
The strategic planning of tobacco tax policy could benefit from the results of this scientific research, using it as an important factor in the decision-making process, as an increase in the standard of living could potentially neutralize the effects on tobacco tax increases.

26. Conclusion
Scenario 1:
Increase of specific excise from 30 euros to 40 euros on 1000 cigarettes
Increase of ad valorem by 2 percent
Price increase by 12.3%, consumption decrease by 7%, public revenues growth by 8%.
Scenario 2:
Increase of specific excise from 40 euros to 50 euros on 1000 cigarettes
Price increase by 23.8%, consumption decrease by 14%, public revenues growth by 12.35%.
under no changes in excise taxes (specific and ad valorem), taking only the effect of income, we would have not so significant changes: the increase in consumption, total excise, VAT and total tax revenues by 0.81%.

27. Recommendations
Aiming toward the increase in excise taxes (especially specific excise since it has a relatively greater impact on consumption) which will cause the price increase and consequently the decrease in tobacco consumption and increase of public revenues;
Compliance with EU Directives and WHO Framework;
Using revenues from excise tax increase to invest in health programs;
Decreasing the prevalence of youth by the increase in excise taxes and creation of strategies and effective programs which will target youth.

28. Recommendations
Developing regional tax harmonization - harmonize taxation policy process and limit incentives for cross-border transactions;
Tobacco tax systems should be structured to minimize the costs of compliance and administration in process of tax compliance and collection of tax revenues, while reducing tax evasion and the risk of illicit trade;
Creating more intensive interaction between key stakeholders in order to more effectively implement tobacco taxation and control policy;
Creating positive effects of fiscal measures applied through comprehensive approach - tackling other policy changes and tobacco control systems (more efficient law enforcement, anti-tobacco campaigns, stricter controls of points of sales etc.);

29. THANK YOU