As the budget process for the FY 2019/2020 is underway, it is important to pay attention to one critical item that has been neglected for the past couple of years. This is tax on tobacco products. Cigarettes precisely.
For years, it has been the norm that tax on cigarettes is increased every financial year. In fact, increase in the sin tax is one component of the budget proposal pronouncement that we have come to expect as Kenyans over the years. However, this changed in the last two financial years’ budget proposals. Why does this matter? One may ask.
Well, the issue of tobacco taxation does matter-actually it matters to the extent as to be regarded as a matter of life (health) and death. For starters, tobacco is one of the leading causes of preventable deaths globally. It is a major risk factor for key Non Communicable Diseases (NCDs) including cancers, cardiovascular and respiratory diseases as well as affects reproductive system among others. By next year, 10 million people globally will have died from tobacco related diseases; with more than 70% of these deaths occurring in developing countries (WHO, 2003) – Kenya included. And speaking of Kenya; the biggest (yet subtle) health challenge currently is arguably NCDs. The National Strategy for the prevention and control of NCDs 2015-2020 estimated that NCDs account for more than 50% of all hospital admissions and over 55% of hospital deaths. And you guessed right, tobacco use is a major contributor to the growing burden of NCDs currently being witnessed.
Now back to tobacco tax and how it relates to the aforementioned. Tax and price measures are considered to be one of the most effective tobacco control strategies due to their potential to discourage initiation, encourage quitting of tobacco use and generate revenue for governments. Article 6 of the World Health Organization Framework Convention on Tobacco Control (WHO FCTC)-which Kenya is a party to; requires parties to implement tax policies and, where appropriate, price measures on tobacco products so as to contribute to the health objectives of the treaty. This requirement is domesticated in Section 12 of the national Tobacco Control Act, 2007. Tobacco taxation is therefore an obligation for achieving public health goals.
Kenya is considered to have made significant progress in reforming tobacco tax system and administration. Notably in 2015, Kenya made the greatest development in this regard through the Excise Duty Act, 2015 which introduced a uniform specific and high excise for all cigarettes. This led to a significant increase in cigarette prices by up to 20% or more in some brands. Within two years of implementing these reforms, achievements reported included a drop of 17% in consumption of cigarettes and an increase of revenue of approximately 3 billion (from 9billion to 12 billion). This upward trajectory however changed in the budget statement of FY2017/18 which reverted back to a tiered tax system of two bands (Kshs. 2,500 per mille for cigarette with filters and Kshs. 1,800 per mille for plain cigarettes). The impact of this move was swift and grave: for instance, the industry manipulated the system by introducing non-filter cigarettes (e.g. Sportsman full flow) to avoid the higher tax tier thereby leading to loss in government revenue; and whereas nominal prices of cigarettes remained constant, real prices shrunk thereby contributing to affordability of cigarettes.
Even though there was great expectation that the lessons learnt from the previous setback would motivate change, the situation did not improve the following budget year. In the 2018/19 budget statement, there was no mention of proposals on tobacco tax increment, hence maintaining the status quo. In effect, the previous tiered tax system with two bands continues to prevail. The rates were however adjusted slightly upward through Legal Notice 239/2018 to Ksh. 2,630/mille and Kshs. 1,893/mille for filtered and plain cigarettes respectively. Whereas the increment is a step in the right direction (even if though was intended to address inflation rises), for any tobacco tax adjustment to be meaningful towards protecting public health the tiered band system must be collapsed into one and the rate increased significantly. Otherwise the neglect continues to be costly in terms of public health goals as well as revenue collection. And that is why it is necessary that this financial year, attention be paid to tobacco taxation, precisely by returning the single tax tier and at a higher rate. Adoption of this proposal will be a double score for government by contributing to reduction in the NCD burden while increasing government revenue that would support financing the Big Four Agenda’s Universal Health Coverage programme. This year therefore, let us make tobacco taxation matter again.
International Institute for Legislative Affairs