1. Ministry of Health of the Republic of Uzbekistan
«Health-2» Project
World Bank
Changes in budget revenues and tobacco consumption, if tobacco products excise rates are increased
Shukurov Sh. – «Health-2» Project Specialist Yurecly A. – World Bank consultant
December 13, 2007, Tashkent, Uzbekistan

2. Budget tax revenues increase along TP excise tax rate increase
Excise tax rates and budget revenues from cigarettes taxation in Uzbekistan
Budget tax revenues increase along TP excise tax rate increase
Reference year – 1996 2 2

3. Change in real GDP per capita, nominal and real excise tax rate/pack during 1997-2005
the real increase in excise tax rate is not backed up by annual inflation rate
real GDP
nominal excise tax rate
real excise tax rate
Baseline – 1996

4. Revenues from excise taxes for TP in the period of 1997-2005 in real and nominal terms
Real increase of excise tax revenues does occur, which requires
correcting excise tax rates taking into account annual inflation rate
Reference year– 1996

5. Budget tax revenues increase along TP excise tax rate increase
Excise tax rates and budget revenues from cigarettes taxation in Uzbekistan
Budget tax revenues increase along TP excise tax rate increase
Reference year – 1996

6. Average cigarette price/pack* (soums) 250 - 600
In 2005, reduction of excise tax resulted in decrease of budget revenue
2004
2005
Average cigarette price/pack* (soums)
Reduction in excise tax rate by 5% (soums) 72
68,4
Sales (mln. packs)
297,8
293,5
Budget revenue from excise taxes (bln.soums)
21,5
20,1
* Note: most popular brands

7. How higher taxes can be good for population health?
Price elasticity for tobacco products ranges from (-0.4) to (-0.8)
Increase in prices of tobacco products change the smoking habits.
The tax increase results in the reduction of consumption:
A 10% price increase reduces the consumption by
4% in developed countries
8% in developing countries
While success в reducing smoking depends on a range of inter-related factors, increasing the tax (price) of cigarettes is one of the most effective ways of reducing consumption. Economic studies show that increasing cigarette prices could change people’s smoking behavior towards quitting, reducing consumption or switching to cheaper brands. Based on evidence, a 10% increase в price would reduce the cigarette consumption by 4% в developed и 8% в developing countries. Since levels of taxation can be used to raise prices, or to keep them high, taxation is an important part of any effective strategy to reduce smoking. Given the higher share of cigarette consumption в developing world, that represents a significant global reduction. Moreover, poor и youth demonstrated to be more sensitive to higher prices. Most smokers take up the habit before they are 20. This means any strategy to reduce smoking must include measures to deter young people. Higher prices do not only reduce the cigarette consumption among young people but also delay their smoking habit for later years. Given the fact that, today’s youth is tomorrow’s smoker, deterring young people taking up smoking now means, lower prevalence rate, easy quitting effort, lower health problems и health care cost в the future.
Another concern is the level of Табачные изделия spending в people’s income, especially among poor. Which I will discuss it later on.
Developed states
Developing states

8. Forecast of budget revenues and tobacco products consumption in case of excise tax rise
Increase of excise tax rate will provide for budget tax revenue increase
Reference year– 2005

9. Excise tax rate rise will provide for increased budget tax revenues
Forecast of share of budget revenues and consumption of TP, in case excise tax rate is increased
Excise tax rate rise will provide for increased budget tax revenues
Reference year – 2005

10. Increase of excise tax rate will provide for increased budget revenues
Forecasts of total budget revenue (excise tax plus VAT) from cigarettes in case of excise tax increase
Increase of excise tax rate will provide for increased budget revenues
Reference year – 2005

11. Change in smoking attitude of men when the price of cigarettes increases by 100%
despite the increase in prices, many smokers will still continue to smoke

12. Share of illegal import of cigarettes in the total volume of cigarettes consumption in Uzbekistan (2003)
According to the data of Ministry of Finance of the Republic of Uzbekistan, in 2003, illegal import of cigarettes comprised around 28,9% In most countries, similar volume of illegally trafficked cigarettes is observed, reaching 30%

13. Share of illegal import of cigarettes in the total volume of cigarettes consumption in Uzbekistan (2005)
Illegal import of cigarettes in the Republic of Uzbekistan comprises 10.4%, illegal imports level of 28,9% cannot be confirmed
Total cigarettes consumption by households, in millions of packs
309,2
Total cigarettes consumption by households, with the assumption about reduced consumption coverage by 15%, in millions of packs
355,6
Total volume of tobacco products sales, including domestic production and imports, in millions of packs
318,5
Illegal import (difference between the total volume of tobacco products sales and total consumption of cigarettes by households), in millions of packs
37,1
Share of illegally imported cigarettes
10.4%

14. Conclusions of the economic review
Increase of retail and import prices for cigarettes by 10%:
Will increase rates of illegal trafficking by 13%, but
Tax revenues to the budgets of the countries will increase anyway (14%) despite the reduction of the world consumption (1.1%) and loss of tax revenues (5,5%) caused by trafficking.

15. Article 7. The Law «About licensing of certain types of activity in the Republic of Uzbekistan»
«Licensed types of activity include those, rendering which could violate rights and legal interests, harm health of citizens and breach public safety, and which can not be regulated by any other methods, but licensing».
Consequently, production of ‘Nas’ can be referred to a licensed type of activity, as its consumption can harm health of the citizens.

16. ‘Nas’ harm reduction ‘Nas’ quality standardization
Licensing of ‘Nas’ production and trade
Introduction of excise tax for ‘Nas’
Establishment of a systematic monitoring
Changing of adequate administrative and criminal measures

17. Conclusion
Win-win situation both for the public health and the economy in general
1. Increase of excise tax rates for tobacco products will lead to:
Reduction of tobacco smoking, especially among young people
Increase of budget revenues despite of expected losses due to illegal trafficking
2. Regulating of production and trade of ‘Nas’ and its taxation will lead to:
Limiting access of the youth to the ‘Nas’
Additional source of budget revenues will appear