Why Nigeria needs a huge tobacco tax hike to curb smoking
Cigarette sales in most African countries are going up all the time. But smoking rates are much lower than in high-income countries. Because of these comparatively lower smoking prevalence rates – combined with the urgent need to address infectious diseases – tobacco control policies have largely not been prioritised.
Nigeria is a case in point. Preventing smoking rates from increasing requires a proactive response, including strong excise taxation policy change. The country has been slow to act. Last year it increased tobacco excise tax rates. But the increase was small and still falls well below the World Health Organisation (WHO) recommended excise tax burden of 70% – that’s the percentage that the excise tax should make up of the average retail price.
Sufficiently increasing tobacco excise tax in Nigeria is crucial to bring about meaningful change. But to how much? To answer this question the Centre for the Study of the Economies of Africa, with our support at the WHO Framework Convention on Tobacco Control Knowledge Hub on Tobacco Taxation, used a tobacco excise tax simulation model to evaluate the impact of various changes in the tobacco excise tax structure on government revenue and smoking prevalence.
The initial results show that targeting an excise tax burden of 75% – taking into account different economic growth rates and industry pricing response – would result in an approximately 20% drop in cigarette consumption. As tobacco is an addictive substance, consumers will continue to spend on cigarettes, but less so. The simulation also showed that once the higher tax burden is reached, government revenue from tobacco excise taxes would increase by more than 100%.
It’s reasonable to assume that this level of change would need to be phased in over a couple of years. For instance, in 1994 South Africa announced that it wanted to reach an excise tax burden of 50% by the late 1990s. This resulted in more than 100% increase in government revenue and 30% drop in aggregate smoking rates in 10 years.
The WHO Framework Convention on Tobacco Control is the first global health treaty created to address the tobacco epidemic and the burden of death and disease associated with it. One of the convention’s key articles to reduce demand is the use of excise taxation on tobacco products. But it remains underused in most African countries.
Nigeria ratified the convention in 2005, but only enacted comprehensive tobacco control policies in 2015 with the National Tobacco Control Act, after years of strong industry opposition. Researchers have emphasised the role of civil society organisations in Nigeria in culminating this change.
But the act is limited in the provisions it makes for the use of price and tax measures. These are brief and not explicit.
Last year Nigeria increased the excise tax on cigarettes. Although a step in the right direction, the tax change fell short of bringing meaningful change: it fell way below the excise tax burden of 70% recommended by the WHO.
The Nigerian Tobacco Control Alliance – a tobacco control advocacy group consisting of several civil society organisations – argues that, even after the increase, the tobacco excise taxes are still too low. And it’s called for an increase in rates that amount to the WHO’s recommendation.
Nigeria should also consider a proposal put forward in the International Monetary Fund country report. It has suggested a move from ad-valorem tax (levied in proportion to the estimated value of goods) to specific excise taxes (levied on the quantity of goods). This, it argues, is necessary to improve tax administration and revenue collection. It also suggests that real tobacco excise taxes be more than doubled over a three-year period.
Why Nigeria matters
A significant tax change in Nigeria is not only important for the health of Nigerians. It’s important for the continent because Nigeria is politically and economically important in Africa – and a strategically important policy trendsetter within the West African region.
It’s also been a magnet for investment by tobacco companies. Both British American Tobacco and Japan Tobacco International have production facilities in Nigeria. The British American Tobacco facility in Nigeria is the regional headquarters.
The importance of Nigeria strengthening its tobacco excise tax policy is further increased by its strategic position within the Economic Community of West African States (ECOWAS), a West African regional economic bloc.
In December 2017 the ECOWAS Council of Ministries adopted a new tobacco tax directive. It requires members to apply a minimum ad valorem tax of 50% on the factory price as well as specific tax on clearly defined quantities of tobacco products.
The next step for this directive is country-level implementation, of which Nigeria could set an example for the region.
So what’s next? To bring about meaningful change, it’s crucial that tobacco excise tax be increased even further in Nigeria, something more in line with the levels proposed by the International Monetary Fund and the Centre for the Study of the Economies of Africa.