IILA SUBMISSION- NATIONAL BUDGET 2016- 2017 (Tobacco Taxes)

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IILA SUBMISSION- NATIONAL BUDGET 2016- 2017 (Tobacco Taxes)

IILA has worked on tobacco control for over 10 years, first on advocacy for the enactment of the tobacco control Act, 2007 and more recently on effective implementation of the legislation. Worked on tobacco control for over 10 years. Over the last 5 years IILA has been involved in tobacco tax advocacy in Kenya.

Place of Tobacco Control in Global and National Development priorities

United Nations Sustainable Development Goals (UN- SDGs)

Tobacco use impedes sustainable development due to its contribution to poverty, inequity,agriculture &food production,organized crime, environmental degradation, ill health and other negative social- economic factors. Tobacco control indirectly touches on most of the SDGs, with one of seventeen goals relating directly to Health; one of nine health targets relating to NCDs and one of four means of implementation targets relating to implementation of the World Health Organization Farnework Convention on Tobacco Control (WHO- FCTC).

World Health Organization Framework Convention on Tobacco Control (WHO FCTC)

The FCTC is the first treaty negotiated under the WHO and is an evidence-based agreement that re-affirms the right of all people to the highest standard of health. It is a response to the globalization of the tobacco epidemic and provides both demand(price and tax measures, protection from exposure to tobacco smoke, regulation of contents of tobacco products, regulation of tobacco product disclosures, packaging and labeling of tobacco products, education, communication &public awareness, tobacco advertising, promotion &sponsorship) and supply (Illicit trade in tobacco products, sale to and by minors, support for economically viable alternative activities) reduction strategies to reduce the prevalence of tobacco use and hence contribute to public health. Kenya signed and ratified the FCTC in 25th June 2004 and domesticated through the Tobacco Control Act (TCA), 2007.

National Policy documents

The constitution of Kenya, 2010 provides in Art 2(6) that all international treaties ratified by the country are part of national law. Further chapter 4 on Bill of rights provides for the highest attainable standards of health, clean and healthy environment, consumer rights; which are all impacted by tobacco growing, manufacture, sale and use. The social pillar of the vision 2030 proposes a shift of the national health Bill from curative to preventive. This will entail addressing risk factors and primary causes of disease and ill health.
Kenya Health Policy 2013- 2030 seeks to halt and reverse the rising burden of NCDs through reducing exposure to risk factors such as tobacco smoke; while the National Strategy for the prevention and control of NCDs 2015-2020 provides a roadmap for the implementation of the Kenya Health policy objectives that touch on NCDs towards reducing preventable morbidity and mortality due to NCDs. It recognizes that tobacco use is a major risk factor for many Non- Communicable Diseases (NCDs); including cancer, diabetes, cardiovascular and respiratory diseases and a plays a role in some infectious diseases such as tuberculosis (TB).

Public Health and Tobacco Taxation

Tax and price measures have been found to be one of the most effective tobacco control strategy due to their potential to discourage initiation and encourage quitting of tobacco use. They also have the potential of generating much needed revenue for governments. The figure below summarizes the relationship between tobacco taxes and the health impact of tobacco use

Article 6 of the FCTC acknowledges that price and tax measures are an effective and important means of reducing tobacco consumption by various segments of the population, in particular young persons and individuals with low incomes and purchasing power. Parties to the FCTC are required to implement tax policies and, where appropriate, price measures on tobacco products so as to contribute to the health objectives by reducing tobacco consumption. In Kenya, section 12 of the Tobacco Control Act of 2007 requires the minister of Finance to Implement tax and price policies on Tobacco and tobacco products so as to contribute to the objectives of the Act.
WHO recommendations on effective tobacco tax policies administration (Best practices)
Studies from around the world that have demonstrated the most effective ways of administering tobacco taxes in order to achieve public health and revenue objectives of governments. The WHO has developed a manual that presents best practices for parties to the FCTC to adopt. They include:

  • Shifting the primary objective of tobacco taxation from pure revenue collection to a hybrid of meeting public health goals and generating revenues for government programs. This paradigm shift will then influence the type of taxes to be targeted, design and implementation of the tax structure to be adopted, approach to be used in relation to uniform or differential rates for different products. Amongst other factors.
  • Excise tax is the most effective type of tax to achieve public health goals and should account for at least 70% of retail price of tobacco products. At this rate, governments can be assured of price increases; which will not only increase revenues, but also promote quit rates and reduce initiation rates.
  • Excise tax increases should aim to achieve reduction of affordability. This calls for indexation of the taxes for inflation; which would lead to real price increases as opposed to nominal increases which are weakened by rising incomes and other factors.
  • Simple is better. Complicated systems and structures make tax administration difficult, encouraging tax avoidance and evasion by tobacco companies. Simple structures are more likely to lead to better public health and revenue outcomes.
  • Specific tax applied to all types & brands of tobacco products are encouraged. Differential treatment based on specific product price or characteristics often lead to switch from one product to another negating the public health intentions.
  • Low tobacco taxes/ prices should never be viewed as a ‘pro- poor’ policy. Low taxes and prices lead to greater tobacco use amongst the poor hence they bear a disproportionate share of the health and economic burden.
  • The capacity of tax/ revenue authorities should be strengthened in order to promote effective administration, monitoring and evaluation of impact
  • In order to make it a complete win- win situation between revenue collection and public health, governments should use a portion of revenues collected from tobacco taxes to support tobacco control and other health programs in the country in order to reduce the burden caused by the use of this and other harmful products.

    Status of Tobacco Taxation in Kenya

    In 2011, IILA launched a study that showed that:

  • Excise tax structure was complex with bands based on product characteristics and retail selling price, making tax administration difficult.
  • Cigarette tax revenues were decreasing even as rates and consumption increased; possibly due to the challenges in administration caused by the complex structure and tobacco industry manipulation.

  • Real price for cigarettes is on the decrease; thus affordability increasing due to increasing incomes and the effect of inflation on price increases.
  • Excise tax share in cigarette price was low when compared to WHO recommended 70%

    Over the years, a number of successes have been achieved towards the best practice recommended by the WHO. By 2012, the government put measures to strengthen the tobacco tax structure; including the indexation of tobacco taxes, simplification of the structure by reducing the bands from four (4) to one 9(1) and raising the tax rate to Ksh. 1,200 or 35% of Retail Selling Price (RSP), whichever is higher.
    In his budget speech of 2015/ 2016, the Cabinet Secretary for finance sought to deepen tax administration reforms to ease compliance and promote public health by “… imposing excise duty to compensate for harmful effects caused by production, supply, consumption or use of goods and services, which costs are not directly reflected in their prices”, including sticks of harmful cigarettes and tobacco. The Minister further “converted the existing hybrid tax regime for cigarettes into a specific one… ” The impact of this move was an introduction of a flat rate of Ksh. 2,500 per mille for ALL cigarette products which translates into Ksh. 50 per pack of 20 sticks; an increase of 1% for premium brands (eg dunhill and embassy); 37% for mid-price brands (e.g. Sportsman, Sweet Menthol, and Safari), and 81% for economy brands (e.g. Rooster, Super Match, and Rocket) .

    Challenges for tobacco tax policy development and implementation

    The biggest challenge for tobacco tax policy development and implementation has been the interference of the tobacco industry. There is also limited awareness by some policy makers on the importance of tobacco taxation as a strategy for public health. On 27th August 2015, the National Assembly passed the Excise Duty Bill, 2015 with retrogressive ammendments to enable “low cadre of Kenyans to access quality cigarettes”. After strong opposition from tobacco control stakeholders, the president declined to assent to the revised Bill which would have defeated both the public health and revenue goals of the government. The Excise Duty Act, 2015 which came into effect on December 1st 2015 contains the progressive provisions in line with global best practices. However the implementation of the legislation is under challenge as the major opposition party has petitioned the high court of Kenya to suspend the entire Act on allegations of breach of the constitution.

    Recommendations: Policy Reforms and fiscal proposals for 2016/ 2017 National Budget

    In line with the current status of tobacco taxation in Kenya, IILA would like to submit the following recommendations for tobacco tax policy reforms and fiscal proposals for the 2016/ 2017 national budget:
    1. The government needs to protect the gains in the Excise Duty Act, 2015. In particular:

  • Tobacco excise duty should be kept simple and specific to facilitate easy administration, projection and collection of revenues due and monitoring of compliance.
  • All types and brands of tobacco products should be taxed at a flat rate to avoid down- switching between brands.

  • Excise tax for tobacco products should be regularly adjusted for inflation to preserve the impact in price and affordability.
  • The tobacco taxation provisions in the Excise Duty Act, 2015 should be fully implemented in order to protect public health and revenue goals.
  • 2. The government should strive towards progressive increase of tobacco tax rates towards the WHO recommendations of at least 70% of retail price. This will enhance the achievement of public health objectives by reduce affordability and initiation; while at the same time increase quit rates and generating more revenues
    3. Strengthen tobacco tax administration, monitoring and evaluation of impact by:

  • Building capacity for revenue authority and enforcement officers
  • Ratification of the WHO/ FCTC protocol for the elimination of illicit trade in tobacco products (ITP). In addition, the Kenya Revenue Authority (KRA) should implement a complete roll out of Track and trace mechanism that will enhance the monitoring of the tobacco products supply chain, reduce instances of illicit trade and enhance tax policy implementation
  • 4. The Government should use a portion of revenues from tobacco taxes to support tobacco control and other health programs

    By | 2018-03-16T16:03:26+00:00 February 15th, 2016|Bills, Press release, Tobacco Control|0 Comments

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