The Perfect Proposal for the Addis Ababa Accord: Tobacco Taxes

April 01, 2015

In July, countries will gather in Addis Ababa to adopt an agreement on Financing for Development (FFD). A recently issued “Zero Draft” for an Addis Ababa Accord lays out a framework that goes beyond looking at funding sources to reaffirm the goals, principles, challenges, and policies that are required to meet the Sustainable Development Goals (SDGs).

Yet the one financing source that meets all of the FFD’s aspirations has so far been left off the table: tobacco taxation.

Omitting tobacco taxes is a big mistake because it addresses key aspirations stated in the Zero Draft to improve health and mobilize more domestic revenues. Raising tobacco taxes also addresses the document’s other proposals related to efficient regulations; official development assistance for improved tax administration; and protecting public health measures from abuse of trade agreements.

On health, the draft supports funding modalities that “guarantee social protection and essential public health services” (para. 11) as well as calling to “guarantee access to essential health care” (para. 31). Tobacco taxes are themselves an essential public-health service because they reduce the incidence of smoking-related diseases. In turn, this reduce demands on health-care systems, making it easier to address other illnesses.

On Revenue Mobilization, the draft calls for countries to raise at least 20 percent of GDP for public goods and equity-promoting policies that form the core of national sustainable development strategies (paras. 17–20). Tobacco taxes generate proportionally more health benefits for the poor than for the rich, while most of the revenues come from the rich instead of the poor. Currently, countries generate US$145 billion each year from tobacco taxes — mostly in the OECD — and spend barely US$1 billion annually on tobacco control efforts. Increasing tobacco taxes by 50 percent would raise an additional US$101 billion. Countries such as Brazil, the Philippines, and South Africa already demonstrate the health and revenue benefits of higher tobacco taxes.

On efficient regulation, the draft commits governments “to regulate harmful activities and incentivise behavioral change” (para. 15). The measures that 180 countries have endorsed in the Framework Convention on Tobacco Control are perfect examples of coherent and cost-effective measures that would fulfill this commitment — if countries were to adopt them more comprehensively.

On tax administration, the draft calls upon countries to improve the fairness of taxes and to strengthen tax administration (para. 20). It also calls for international cooperation to combat tax evasion (para. 25) and for using overseas development aid to help countries improve tax administration (paras. 19 and 58). Poor tax administration and enforcement is the only real obstacle in the way of making tobacco taxes an effective instrument for reducing smoking-related diseases and raising revenues. Harmonizing tobacco taxes regionally and strong enforcement make smuggling less attractive and give tobacco taxes more punch.

On trade policies, the draft calls for a range of measures to facilitate trade. But the document also indirectly acknowledges that some corporations try to abuse international agreements and infringe on domestic policies that address social and environmental protections. The Zero Draft calls for “governments to support and assist WTO members who use flexibilities in these agreements” to assure access to medicines and respond to climate change (para. 78). The possibility that corporations will abuse intellectual property protections and investor-state dispute settlement mechanisms is nowhere more apparent than in the anti-social behavior of tobacco companies, and the draft should specifically add tobacco control measures under the FCTC as worthy of supporting through flexible provisions.

The one place in the Zero Draft that mentions tobacco taxes places them in a category of innovative modalities (which they are) but also within a list of international taxes (which until now they have not been). Increasing participation in taxes on international financial transactions, carbon emissions, and transportation fuels (para. 62) are good ideas; but tobacco taxes should be treated as their own innovative modality — something set by domestic policies but coordinated and supported internationally.

If I could have my fondest wish, it would be for a new paragraph to be added to the Addis Ababa Accord, stating:

Recognizing that, without concerted action, tobacco consumption will lead to 1 billion premature deaths in this century; that 180 countries are parties to the Framework Convention on Tobacco Control; that proven cost-effective measures exist to reduce the prevalence of tobacco use; and that tobacco taxes are a financial instrument which is extremely effective at reducing tobacco consumption while mobilizing revenues for public action to address health and other social needs; we commit to support and assist countries in raising inflation-adjusted specific excise taxes to at least double the price of tobacco products by 2020.

But I would be happy with even a few smaller changes such as those below (additions are indicated by bold lettering; deletions are in brackets):

Para 62: We encourage additional countries to voluntarily join in implementing the agreed mechanisms and to help develop and implement additional innovative modalities, including a widening of countries participating in a financial transaction tax, carbon taxes or market-based instruments that price carbon, or taxes on fuels used in international aviation and maritime activities [or additional tobacco taxes]. We further commit to support and assist countries in raising inflation-adjusted specific excise taxes to at least double the price of tobacco products by 2020.

Para 78: “We support and will assist WTO members to take advantage of the flexibilities in the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) to further the public interest in sectors of vital importance for sustainable development, including public health, in particular to provide access to affordable essential medicines and vaccines for all [,  ] and implement tobacco control measures, and responses to climate change. All countries should ensure that they provide these flexibilities in their bilateral trade and investment agreements as well.

Para 25: “We thus commit to a global campaign to substantially reduce international tax evasion through more concerted international cooperation. We agree to work together to strengthen transparency and adopt pending policy innovations, including: public country-by-country reporting by multinational enterprises; public beneficial ownership registries; regional agreements to raise tobacco taxes in neighboring countries; and multilateral, automatic exchange of tax information, with assistance to developing countries, especially the poorest, as needed to upgrade their capacity to participate.

Para 58: An important use of ODA is to catalyze additional resource mobilization from other sources, public and private. ODA can support improved tax collection — including from taxing “bads” like tobacco and carbon — and help strengthen domestic enabling environments.

What better way to demonstrate the commitment to good governance and rational policies that promote human welfare on a global scale while generating the very resources needed to sustain that future? Yes! tobacco taxes are the perfect fit for the Addis Ababa Accord!


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.