EXPENSIVE MEANS HEALTHY

Smoking is one of the most serious threats to human health. According to the World Health Organization (WHO), the tobacco epidemic takes up nearly 7 million lives each year. This is more than the annual number of victims suffering from HIV/AIDS, tuberculosis and malaria combined. At the same time, 10% of deaths are due to exposure to tobacco smoke, that is passive smoking.

22% of the adult population of the planet is smoking. Almost 80% of smokers live in low- and middle-income countries. According to a report by the U.S. Department of Health and Human Services, smoking leads to a decline in employee effectiveness and reduces the overall length of work, causing chronic illness and premature death. The statistics show that the total economic damage from smoking exceeds $1.4 trillion, which is equivalent to 1.8% of the world's annual GDP.

Smoking in Azerbaijan

Azerbaijan, where about half the population is smokers, is also suffering from smoking. According to the Ministry of Health, 35.5% of men over 15 years smoke. Among men aged 45-49, this indicator is the highest - 53.3%. In addition, the number of women smokers is increasing, their share has already reached 1%.

At the same time, passive smoking is widespread in Azerbaijan. 77% of non-smoking men are forced to inhale cigarette smoke in public places and 41% of women do this at home.

The spread of smoking among young people is alarming. According to the Ministry of Health, 7.3% of adolescents (13-15) (mostly boys) smoke regularly. 10.3% have smoked, of which 32.6% have done so already before the age of 10 years. 64.8% of smoking teenagers purchase cigarettes in stores. Studies conducted in 61 countries showed that the average prevalence of smoking among students aged 13-15 years is 10.7%.

According to polls, 72.8% of all smokers in Azerbaijan over the past year have tried to get rid of a bad habit, but they failed to achieve this.

According to the Center for Global Health Studies, a person who quits smoking at the age of 25-34 years extends his life on average by 10 years, a person who did it in 35-44 years, receives an additional 9 years, 45-54 years - 6 years, 55-64 years - 4 years.

International organizations are against cheap cigarettes

Azerbaijan is already taking steps to reduce cigarette consumption in the country. Parliament of Azerbaijan discusses in the second reading the bill restricting smoking in public places and advertising of tobacco products. However, international organizations consider the use of tax measures to increase the retail price of tobacco products as the most effective method of combating smoking. The World Bank (WB) recommends increasing the tax on tobacco products and Azerbaijan.

"Combating tobacco products has a beneficial effect on everyone, but especially on the poor. With higher taxes on tobacco products and cigarette prices, the poor are more likely to quit smoking than the rich. As world practice shows, a 10% price increase leads to a reduction in consumption in high-income countries by 4%, in countries with lower-than-average income by 8%," said the World Bank citing WHO.

The International Monetary Fund (IMF) notes that raising taxes on tobacco products can provide a win-win option: higher income and positive impact on health.

According to WHO, cigarette prices around the world are still very low. Only in 33 countries, taxes exceed 75% of the retail price of a pack of cigarettes - the recommended level of taxation to influence the degree of consumption.

Successful examples

The Turkish government has consistently increased taxes on tobacco products since 2002. Currently, the total tax burden is 83% of the price of a pack of cigarettes, which is one of the highest rates in the world. As a result, Turkey managed to double the tax revenues for this item and bring it to $30.27 billion in 2015. In addition, the share of smoking population decreased from 31.2% in 2008 to 23.2% in 2012.

In 2012, taxes on tobacco products in Philippines were raised and simplified. As a result, the percentage of smokers among adult population declined from 31% (2008) to 23.3% (2015). Tobacco products account for about 80% of $3.9 billion in additional income received in the first three years of levying a new tax. The number of families for which the national government pays contributions to the health insurance program, from additional budget revenues, has increased from 5.2 million initial participants in the program in 2012 to 15.3 million in 2015.

In 2008-2017, Ukraine increased excises on cigarettes by more than 10 times. As a result, the annual revenue from excise taxes on tobacco products increased six-fold, cigarette sales decreased by 40%, and the prevalence of daily smoking decreased by 28%. It is estimated that in 2017, it will be possible to increase the amount of budgetary charges to 1.7% of GDP, compared with 1.5% in 2016.

In general, according to estimates of WHO and the American Cancer Society, with an increase in taxes on cigarettes per one international dollar per pack of 20 cigarettes in all countries of the world, the average retail price for cigarettes will increase by 42% (from 3.2 to 4.55 international dollars). Tax revenues from the sale of tobacco products will increase by 47% (from 402 billion to 593 billion international dollars).

Azerbaijan is waiting for expensive cigarettes?

The WB held a seminar in Baku on economic aspects of taxation of tobacco products, where it noted the potential for growth in the revenues of the state budget of Azerbaijan due to the increase of the tax on tobacco products.

According to Patricio Marquez, the World Bank's leading healthcare specialist and coordinator of the Global Taxation Program for Tobacco Products, Azerbaijan has a high level of cigarette consumption and low taxes and prices in comparison with other countries. "Therefore, there is great potential for attracting additional funds to the state budget," said Marquez.

Today, Azerbaijan applies excisable taxes (₼4 for each one thousand cigarettes, ₼10 per one thousand cigars) and VAT (18%) to tobacco products. Besides the listed taxes, an import duty of $0.5 for each one thousand cigarettes is applied.

The expert noted that the opponents of raising taxes on tobacco products put forward three main arguments: it will reduce the incomes of producers, place an additional burden on the poor, and will increase smuggling.

"The first argument is not serious, since the cigarette production is one of the most profitable in the last century due to cheap production and constantly growing demand from the dependent population. As for the second point, as practice shows, consumption reduction is observed among the low-income population, as its budget no longer allows buying expensive cigarettes and they are forced to get rid of this harmful habit. In addition, additional revenues of the state budget can be channeled to improve the quality of life of these layers. Finally, smuggling can be stopped thanks to a strong system of tax and customs administration," said Marquez.

Musa Guliyev (MP) nevertheless noted the risks of growing poverty due to the rise in price of cigarettes and intensification of smugglers in Azerbaijan.

"In fact, Azerbaijan is a patriarchal country. In most families, the main source of family income is a man who is also often the only consumer of cigarettes. Not all of them will decide or will be able to quit smoking. There is a risk that they will send more of their funds to purchase cigarettes, which will eventually affect the family budget. As for smuggling, if cigarette prices in Azerbaijan significantly increase, then illegal flow of tobacco products from Iran or Pakistan - countries with cheap cigarettes will increase," said Guliyev.

The WB has already discussed these issues with various departments of Azerbaijan. According to the head of the Baku office of the World Bank, Nawid Hassan Naghwi, the Azerbaijani government was interested in the proposal to raise taxes on tobacco products. "We received a positive response to our proposals. These reforms can affect both the structure of taxes and the health care system," said Naghwi.

World Bank recommends…

That the countries, which decided to increase taxes on tobacco products, act in a large scale and promptly. According to the experts of the bank, tax strategies should focus primarily on achieving progress in protecting health and only then on replenishing the budget. This means that at an early stage, it is necessary to increase significantly tax rates on tobacco products.

The World Bank recommends preventive measures at the affordability of cigarettes. Effective strategies are based on the combination of a significant initial rise in tax rates with their regular increase over time. This is done to adjust inflation and increase per capita income.

In addition, the World Bank recommends a flexible allocation of additional funds and use it for politically popular purposes. This can help the population to increase taxes. The WB recommends that in case of increasing taxes on tobacco products, additional funds be allocated to finance the compulsory health insurance system. Azerbaijan is currently implementing pilot projects in two regions and intends to expand gradually its coverage. The system of medical insurance will require serious financial investments from the state, since benefits on payments would be distributed to 3-3.5 million people (one-third of the country's population).

According to the Ministry of Finance of Azerbaijan, in 2016 the state budget received ₼4 million 871,400 (24.5% decrease compared to 2015) on excise tax on tobacco products and ₼31 million 92.9 thousand (a decline of 29.4%) from import taxes on tobacco products.

Reducing the consumption of tobacco products proportionally reduces the prevalence of non-communicable diseases, which, according to the Ministry of Health, account for more than half of the population's diseases and cause 80% of deaths in Azerbaijan. Reducing smoking will bring the country closer to the implementation of the UN Sustainable Development Goals, which call for a 30% reduction in mortality from non-communicable diseases by 2030.