ADVANCING ACTION ON THE IMPLEMENTATION OF TOBACCO TAX HARMONIZATION IN THE ORGANIZATION OF EASTERN CARIBBEAN STATES OECS COUNTRIES Cover photos (clockwise from left): Union Island Clifton Bay Grenadines Islands. Photo by happytrip / iStock. Woman in St. Kitts. Photo by Joel Carillet / iStock. Cigars concept on a box. Jorge Villalba / iStock. Castries Market, Saint Lucia. Photo by argalis / iStock. ADVANCING ACTION ON THE IMPLEMENTATION OF TOBACCO TAX HARMONIZATION IN THE ORGANIZATION OF EASTERN CARIBBEAN STATES (OECS) COUNTRIES THE DATA ON TOBACCO1 USE IN ORGANIZATION O EASTERN CARIBB STATES (OECS) RE HIGH LEVELS OF TOBACCO USE, B AMONG ADULTS CHILDREN. THE T SYSTEMS OF THE II // Executive Summary N THE ACKNOWLEDGMENTS OF This report was prepared by a team coordinated by Patricio V. Marquez, Lead Public Health Specialist, Health, Population and Nutrition Global Practice (HNP GP), World Bank Group (WBG), and including Althea La Foucade, Karl Theodore, Christine Laptiste, Ewan Scott, Samuel Gabriel, Charmaine Metivier, and Daren BEAN Conrad of the HEU, Centre for Health Economics, The University of the West Indies; and Alberto Gonima, Engineer and Modelling Consultant, WBG. The team thanks Vyjanti Beharry, Kimberly-Ann Gittens-Baynes, Joshua Ramsammy and Cedrina Carr of the HEU, Centre for Health Economics, The EVEAL University of the West Indies, and Earl Boodoo for the research assistance provided. Valuable comments and suggestions were provided by an international group of peer reviewers: Corne van Walbeek, Professor of Economics at the University of Cape Town, Principal Investigator of the Economics of Tobacco Control Project, and Director of the WHO FCTC Secretariat’s Knowledge Hub on Tobacco Taxation and Illicit Trade, Cape Town, South Africa Julie Berthet Valdois, Research Officer in the Economics of Tobacco Control BOTH Project and Acting Manager of the WHO FCTC Secretariat’s Knowledge Hub on Tobacco Taxation and Illicit Trade, Cape Town, South Africa Annerie Bouw, Legal Advisor, European Commission, Directorate-General Taxation and Customs Union, Brussels, Belgium Santiago Herrera, Lead Economist, Macro Economics and Fiscal Management AND Global Practice, World Bank Group, Washington, D.C., United States. Editing of the report was done by Elizabeth Baldwin, Economics of Tobacco Control Project, and WHO FCTC Secretariat’s Knowledge Hub on Tobacco Taxation and Illicit Trade, Cape Town, South Africa TAX The preparation of this report was carried out under the World Bank Group Global Tobacco Control Program coordinated by Patricio V. Marquez, with the support of the Bill & Melinda Gates Foundation and the Bloomberg Philanthropies. Port of Spain, Trinidad & Tobago, and Washington, D.C., United States, June 2018 E III Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries TABLE OF CONTENTS List of Tables VI List of Figures VIII List of Boxes IX Executive Summary XI 1. Tobacco Use Prevalence and Consumption Trends in OECS Countries 2 2. The Tobacco Market in OECS Member States 6 2.1. Sources of Cigarette Imports for the OECS 6 2.2. Trend in Cigarette Imports 8 2.3. Price Analysis Sampling Process 9 3. Current Tobacco Control Policies in OECS Member Countries 16 4. Tobacco Tax System, Tax Structures and Excise Tax Burden OECS Member States 24 5. Modelling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States 28 5.1. Tobacco Excise Tax – Modeling Harmonization Simulation Framework 28 5.2. Increasing Specific Excise Taxes as OECS Tobacco Harmonization: Best Practice 28 5.3. Expected Benefit of Increasing Tobacco Tax Rates 29 5.4. Regional Cigarettes Excise Taxes Best Practices 29 5.4.1. European Union (EU) 29 5.4.2. The Economic Community of West African States (ECOWAS) 32 5.4.3. Southern African Customs Union (SACU) 32 5.5. Summary Cigarette Retail Price and Tax Burden Projections – 2010-2021 35 5.6. Impact Assessment of Tobacco Tax Increases in the Selected OECS Member Countries 39 5.6.1. Grenada Excise Tax- GDP Impact Assessment - 2018 Forecast, and Proposed Scenarios 41 IV // Table of Contents 5.6.2. St. Lucia Excise Tax- GDP Impact Assessment - 2018 Forecast, and Proposed Scenarios 45 5.6.3. St. Vincent and the Grenadines Excise Tax- GDP Impact Assessment - 2018 Forecast, and Proposed Scenarios 49 5.6.4. Antigua and Barbuda Excise Tax- GDP Impact Assessment - 2018 Forecast, and Proposed Scenarios 53 5.6.5. St. Kitts Excise Tax- GDP Impact Assessment - 2018 Forecast, and Proposed Scenarios 57 6. Conclusions and the Way Forward 62 6.1. Conclusions 62 6.2. The Way Forward 63 References 66 Annex 1 to 3: OECS Excise Tax Harmonization: Simulation Assumptions 68 V Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries LIST OF TABLES Table 1.1: Smoking Prevalence and Deaths in the OECS 3 Table 2.1: Distribution of Sample of Establishments by Country 9 Table 2.2: WHO Most Sold Brand of Cigarettes in OECS Countries (2016) 10 Table 2.3: Price Ranges per Pack of 20s and 10s Cigarettes, Selected OECS Countries 10 Table 2.4: Retail Price Ranges of 20 Sticks Pack of Cigarettes by Market Segment, by Country 11 Table 2.5: Affordability of Tobacco Purchase in OECS Countries and Trinidad and Tobago (2008-2016) 12 Table 3.1: Summary of Tobacco Measures and Policies OECS Countries 17 Table 3.2: Establishment of Government Tobacco Controls in the OECS 18 Table 3.3: Tax and Licensing Information 19 Table 3.4: Tobacco Control Acts/Measures 20 Table 3.5: Legislative Controls as at 2016 21 Table 4.1: Tax Rates and Tax Bases in Selected OECS Countries 25 Table 4.2: Tax Revenues from Tobacco Products OECS Countries 26 Table 5.1: OECS Excise Tax Harmonization: Summary Cigarette Retail Price and Tax Burden Projections - Simulation Policy Option 1 - Scenario 1 Outputs 2017 – 2021 36 Table 5.2: OECS Excise Tax Harmonization: Summary Cigarette Retail Price and Tax Burden Projections – Simulation Policy Option 2 - Scenario 2 Outputs 2017 – 2021 38 Table 5.3: Proposed OECS Tobacco Excise Tax Harmonization Schedule 2019-2025 39 Table 5.4: Grenada Summary Cigarette Excise Tax GDP Impact - 2018 Forecast, and Proposed Scenario 1 Outputs 2019-2021 43 Table 5.5: Grenada Summary Cigarette Excise Tax GDP Impact - 2018 Forecast, and Proposed Policy Option 2 (Scenario 2) Outputs 2019-2021 44 Table 5.6: St. Lucia Summary Cigarette Excise Tax GDP Impact 2017, 2018 Forecast, and Proposed Scenario 1 Outputs 2019-2020 47 Table 5.7: St. Lucia Summary Cigarette Excise Tax GDP Impact 2017, 2018 Forecast, and Proposed, Policy Option 2 (Scenario 2) Outputs 2019-2021 48 Table 5.8: St. Vincent and the Grenadines Summary Cigarette Excise Tax GDP Impact - 2018 Forecast, and Proposed Scenario 1 Outputs 2019-2021 51 VI // Table of Contents Table 5.9: St. Vincent and the Grenadines Summary Cigarette Excise Tax GDP Impact - 2018 Forecast, and Proposed Policy Option (Scenario 2) Outputs 2019-2021 52 Table 5.10: Antigua and Barbuda Summary Cigarette Excise Tax GDP Impact - 2018 Forecast, and Proposed Scenario 1 Outputs 2019-2021 55 Table 5.11: Antigua and Barbuda Summary Cigarette Excise Tax GDP Impact - 2018 Forecast, and Proposed Policy Option 2 (Scenario 2) Outputs 2019-2021 56 Table 5.12: St. Kitts and Nevis Summary Cigarette Excise Tax GDP Impact - 2018 Forecast, and Proposed Scenario 1 Outputs 2019-2021 59 Table 5.13: St. Kitts and Nevis Summary Cigarette Excise Tax GDP Impact - 2018 Forecast, and Proposed Policy Option 2 (Scenario 2) Outputs 2019-2021 60 Annex I - Table 1: OECS Macro-Economic Indicators 69 Annex II - Table 1: OECS Excise Tax Harmonization: Simulation Assumptions: Price (-0.6/-0.4 range) and Income Elasticity (0.9/0.5 range) for Upper Middle-Income Countries (UMIC) 71 Annex II - Table 2: OECS Excise Tax Harmonization: Price (-0.5/-0.3 range) and Income Elasticity (0.8/0.4 range) for High Income Countries 73 Annex III - Table 1: OECS Excise Tax Harmonization: Grenada Tax Scenarios – Current and Proposed Scenarios: Cigarette Excise Tax Structure Actual 2016-2017 & Forecast 2018 - 2021 75 Annex III - Table 2: OECS Excise Tax Harmonization: St. Lucia Tax Scenarios – Current and Proposed ScenariosCigarette Excise Tax Structure Actual 2015-2017 and Forecast 2018 – 2021 76 Annex III - Table 3: OECS Excise Tax Harmonization: St. Vincent and the Grenadines Tax Scenarios – Current and Proposed Scenarios Cigarette Excise Tax Structure Actual 2015- 2017 and Forecast 2018 – 2021 77 Annex III - Table 4: OECS Excise Tax Harmonization: Antigua and Barbuda Tax Scenarios – Current and Proposed Scenarios Cigarette Excise Tax Structure Actual 2015-2017 and Forecast 2018 – 2021 78 Annex III - Table 5: OECS Excise Tax Harmonization: St. Kitts and Nevis Tax Scenarios – Current and Proposed Scenarios Cigarette Excise Tax Structure Actual 2015-2017 and Forecast 2018 – 2021 79 VII Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries LIST OF FIGURES Figure 2.1: Sources of Cigarette Imports into the OECS (2017) 7 Figure 2.2: Cigarette Imports from Caribbean Countries (2017) 8 Figure 2.3: Trend in Cigarette Imports in the OECS 9 Figure 2.4: Cigarette Affordability (OECS and Trinidad and Tobago) 12 VIII // Table of Contents LIST OF BOXES Box 5.1: ETobacco Taxation in European Union 30 Box 5.2: ECOWAS Tobacco Excise Tax Structure 32 Box 5.3: Tax Harmonization in SACU Region 33 Box 5 4: Tobacco Price and Income Elasticity Ranges selected for HIC and UMIC 40 Box 6.1: Lessons Learned from the Tobacco Tax Harmonization in the SouthernAfrican Customs Union (SACU) 64 IX THE DATA ON TOBACCO1 USE IN ORGANIZATION O EASTERN CARIBB STATES (OECS) RE HIGH LEVELS OF TOBACCO USE, B AMONG ADULTS CHILDREN. THE T SYSTEMS OF THE X // Executive Summary N THE EXECUTIVE SUMMARY OF The data on tobacco1 use in the Organization of Eastern Caribbean States (OECS) reveal high levels of tobacco use, both among adults and children. The tax systems of the OECS countries are heterogeneous, with a wide range of rates and bases over five main BEAN categories of tax. This heterogeneity must be addressed if the tax systems of the OECS are to be harmonized successfully. This study analyses the tax systems of five OECS countries (Antigua and Barbuda, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines). Taxes on tobacco, and therefore cigarette prices, vary widely across the five countries, EVEAL and smuggling and tax evasion are genuine risks. The study assesses two possible harmonization scenarios, to estimate the possible impact of tobacco tax policy measures on tobacco use, and at the same time to expand the fiscal capacity of OECS governments through the mobilization of domestic resources. The simulations are modelled using the harmonization policies adopted at the OECS treaty of Basseterre.2 Comparisons are also made with other customs unions to identify regional best practices. The simulations assess the feasibility of alternative tax systems and their probable impact on both government revenue and reducing cigarette consumption. The two alternatives are centred on adding a specific excise tax to the existing ad valorem excise tax (Scenario 1) or adopting a harmonized uniform specific excise tax (Scenario 2). BOTH The assessment shows that that, although Scenario 2, which uses gradually-phased tax increases, would generate a lower reduction in the total number of cigarettes taxed, implying a lower reduction in consumption, it is the preferred option. This is because it reaches a harmonized tax system more completely than Scenario 1, and would still lead to a reduction in overall cigarette consumption and a significant increase in tobacco tax AND revenue, albeit in the longer term. By doing so, it will also reduce the incentive for cross- country trade in tobacco. This study is focused on the harmonization of excise taxes across the OECS sub-region, although the simplification of all taxes across the sub-region may also be desirable. Although the proposed scenarios do not achieve the goal of bringing the OECS countries TAX into full compliance with the tobacco tax burden benchmarks set by the WHO and FCTC, they do provide a starting point. 1 The focus of the study is cigarettes. 2 OECS. Revised treaty of Basseterre establishing the Organisation of Eastern Caribbean States Economic Union. 2010; 1–43 E XI THE DATA ON TOBACCO1 USE IN ORGANIZATION O EASTERN CARIBB STATES (OECS) RE HIGH LEVELS OF TOBACCO USE, B AMONG ADULTS CHILDREN. THE T SYSTEMS OF THE N THE 1 TOBACCO USE PREVALENCE OF AND CONSUMPTION TRENDS IN OECS COUNTRIES BEANAs tobacco use rises steadily worldwide, statistics show that more than 80% of the world’s smokers live in low- and middle-income countries (WHO 2018). The tobacco burden seems to be shifting to the developing world while smoking prevalence has been decreasing in high-income countries. In the Organisation of Eastern Caribbean States EVEAL (OECS), the most commonly used tobacco product is cigarettes, which puts a strain on the health of the future labour force and productivity levels, and increases the associated economic costs (The World Bank 2017). In 2016, the Pan American Health Organization’s (PAHO) report on Tobacco Control for the Americas estimated that general tobacco prevalence in the region of the Americas was 17.1% in adults. However, the report also cited that a “lack of current national and regional data on tobacco use and prevalence is a major obstacle in measuring the impact of tobacco use in the CARICOM3 countries” (HCC, 2016) and, by extension, the OECS countries. The Strategic Plan of Action for the Prevention and Control of NCDs (CARICOM3, 2011) recorded that, in the Caribbean, smoking prevalence ranged from 10% to 27% in adults BOTH and 10% to 25% in teenagers. The data on the daily prevalence of tobacco use in the OECS, as seen in Table 1.1, reveal that in all countries tobacco use by adult females was relatively low. The highest levels of prevalence of daily tobacco smoking generally were among adult males, with St. Lucia reporting 16% and St. Vincent and the Grenadines, 12%. For 2016, Grenada recorded the AND highest percentage of deaths caused by tobacco for both males (10%) and females (5%). Against the backdrop of harmonizing tobacco taxes and working to achieve a reduction in smoking prevalence in the OECS, it must be noted that in St. Lucia, Grenada, and Dominica, the prevalence of daily tobacco use among male children is close to 1%. In St. Kitts and Nevis, the Global Youth Tobacco Survey reported that current cigarette smoking TAX by male and female children was 4.8% and 3.2%, respectively. 3 Caribbean Community. E 2 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Table 1.1: Daily Smoking Prevalence and Deaths in the OECS COUNTRY ADULT SMOKING CHILDREN PERCENTAGE OF PERCENTAGE SMOKING DEATHS CAUSED BY USING TOBACCO PERCENTAGE TOBACCO DAILY USING TOBACCO 2016 2015 DAILY 2015 Male Female Male Female Male Female Antigua and Barbuda 4.97 2.45 0.38 0.56 4.73 2.53 Dominica 7.34 1.29 0.76 0.55 8.46 3.65 Grenada 11.4 2.73 0.79 0.66 9.92 4.64 St. Kitts and Nevis+ 11.4 0.7 4.8 3.2 St. Lucia 16.04 1.96 1.11 0.42 9.16 3.96 St. Vincent and the 12.02 1.99 0.59 0.39 9.2 3.98 Grenadines Source: Tobacco Atlas, 20184; +St. Kitts - Adult Data STEPS Survey 2007-8; Children Data ages 13-15: Current Cigarette Smoking Global Youth Tobacco Survey, 2010. 4 https://tobaccoatlas.org/. 3 // Tobacco Use Prevalence and Consumption Trends in OECS Countries 4 THE DATA ON TOBACCO1 USE IN ORGANIZATION O EASTERN CARIBB STATES (OECS) RE HIGH LEVELS OF TOBACCO USE, B AMONG ADULTS CHILDREN. THE T SYSTEMS OF THE N THE 2 THE TOBACCO MARKET IN OF OECS MEMBER STATES BEAN The tobacco products sold in the OECS are both imported and locally manufactured. There are at least three manufacturers of cigarettes in the OECS countries. Montobacco Limited, which is located on the island of Montserrat, manufactures three brands of cigarettes: Natural Marley Spirit®, Natural Marley Spirit Marijuana®, and 999.9 “Pure Virginia Gold®”, all of which are manufactured for the export market (the company is not allowed to sell its product in Montserrat), including some markets within the OECS and wider EVEAL CARICOM. Another cigarette manufacturer, Jas Garraway & Company Limited, located in Dominica, is the maker of the Hillsborough brand of cigarettes, which is also sold within the region. In St. Vincent and the Grenadines, the St. Vincent Manufacturing Company Limited re-emerged in the market in 2017, with some limited manufacturing done locally. The company produces the Empire brand of cigarettes. While there is some OECS sub-regional production, most of the cigarettes sold and consumed are imported from outside the OECS. 2.1. Sources of Cigarette Imports for the OECS Data gathered from Trade Map5 and UN Comtrade6 indicate that cigarettes are imported BOTH into the OECS sub-region from many parts of the world including Asia (1%), South and Central America (24% and 1%, respectively), Europe (5%) and North America (8%). By far the largest share (61%)7of the cigarettes sold in the sub-region is supplied by Caribbean and CARICOM countries; of that total, Trinidad and Tobago accounts for 91.9%, followed by the Dominican Republic (5%). See Figure 2.2. This means that most of the AND cigarettes imported into the sub-region are not subject to import duties, but are subject to a Common External Tariff (CET), since the OECS market operates within the framework of the wider CARICOM. Article 32 of the Treaty of Chaguaramas, which established the CARICOM, requires member countries are to adopt a CET of a specified range, based on the harmonized commodity description and coding system. Furthermore, Article 84 TAX of the Revised Treaty 2001, which established the Caribbean Community including the Single Market and Economy, states that “goods that have been consigned from one Member 5 https://www.trademap.org/Index.aspx. 6 https://comtrade.un.org/. 7 The figure does not include imports from Montserrat owing to the unavailability of data. E 6 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Figure 2.1: Sources of Cigarette Imports into the OECS (2017) 0% 8% 24% 61% North America 1% South America Central America 5% Europe Asia 1% Carribean / CARICOM Areas not specified Source: UN Comtrade 2018; Trade Map 2018 State to a consignee in another Member State shall be treated as being of Community origin.” When this and other qualifying conditions are met, such goods may be exempt from import duties. The provisions of these articles also apply to cigarettes and other tobacco products that meet the conditions outlined. In the sub-region, smokers have a relatively wide selection of cigarette brands from which to choose. In addition to the brands listed above, the West Indian Tobacco Company (WITCO), the main supplier of cigarettes in the region, supplies 10 different brands of cigarettes to the OECS. These include Benson & Hedges, Dunhill, Kool, Newport, Silk Cut, Viceroy, Embassy, Pall Mall, and Du Maurier. Other brands imported from outside the region include L &M, Marlboro, Pine, Camel, State Express 555, Phoenix (a Grenadian brand produced in Trinidad and Tobago), and Popular. Many of these brands are manufactured by some of the world’s biggest tobacco companies, including RJ Reynolds Tobacco Company, Phillip Morris USA Inc., ITG Brands, and British American Tobacco Company. 7 // The Tobacco Market in OECS Member States Figure 2.2: Cigarette Imports from Caribbean Countries (2017) 1% 1% 5% 1% Saint Maarten (Dutch Part) Suriname Dominican Republic Dominica 92% Trinidad and Tobago Source: UN Comtrade 2018; Trade Map 2018 2.2. Trend in Cigarette Imports Data from various sources8 indicate that cigarette imports in the sub-region have fallen steadily and substantially over the period 2014 - 2017. According to the data, imports in 2017 fell 12.5% from a high in 2014 of 11.2 million packs of 20 sticks of cigarettes.9 Figure 2.3 shows that Grenada, St. Vincent and the Grenadines, and Antigua and Barbuda experienced decreases in imports, while St. Lucia, registered steady growth during the period. St. Kitts and Nevis saw a slight increase in imports between 2016 and 2017. 8 Customs and Excise Departments, OECS countries, UN Comtrade, Trade Map and HEU Estimates. 9 Where data is presented in kilograms, a conversion of 1 gram of tobacco per stick was used. 8 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Figure 2.3: Trend in Cigarette Imports in the OECS 4,000 12,000 OECS TOTAL PACKS OF 20S THOUSANDS THOUSANDS COUNTRY TOTAL PACKS OF 20S 3,500 10,000 3,000 8,000 2,500 2,000 6,000 1,500 4,000 1,000 500 2,000 2014 2015 2016 2017 Antigua and Barbuda Grenada St. Kitts and Nevis St. Lucia St. Vincent and the Grenadines OECS Total Source: UN Comtrade 2018; Trade Map 2018 2.3. Price Analysis Sampling Process To undertake a price analysis of cigarettes in each of the selected countries in the sub- region, samples were drawn that ensured adequate representation from each parish or district and the inclusion of as many categories of establishments as possible. Among the entities sampled were supermarkets, restaurants, bars, and restaurants with bars. The data were collected over a two-week period in November 2017. In Grenada, 22 establishments were sampled, 21 in Antigua, 20 in St. Kitts and Nevis, 31 in St. Lucia, and 20 in St. Vincent Table 2.1: Distribution of Sample of Establishments by Country COUNTRY NUMBER OF NUMBER OF ESTABLISHMENTS SAMPLED OBSERVATIONS Antigua and Barbuda 21 92 Grenada 22 105 St. Kitts and Nevis 20 96 St. Lucia 31 232 St. Vincent and the Grenadines 20 135 Source: HEU-UWI survey 2017 9 // The Tobacco Market in OECS Member States and the Grenadines (see Table 2.1). Each retail entity was categorized based on its registration description or its trading name description. The price analysis was conducted only for the main brands used in each of the selected OECS countries, since these are the brands that attract the greatest volume of sales. Table 2.2 shows the most-sold brands, in the countries selected, for the year 2016. Table 2.2: WHO Most Sold Brand of Cigarettes in OECS Countries (2016) ANTIGUA DOMINICA GRENADA ST. KITTS ST. LUCIA ST. VINCENT AND AND NEVIS AND THE BARBUDA GRENADINES Most sold brand Benson & Du Maurier Hillsborough Du Maurier Viceroy Du Maurier of cigarette Hedges Source: WHO Report on the Global Tobacco Epidemic 2017. Of the countries surveyed in 2017, St. Lucia was shown to have the highest overall prices for cigarettes. Across the selected countries, the price per pack of 20 cigarettes (full pack) varied widely, ranging between EC$5.85 and EC$22.00 per pack in St. Lucia, which has the highest prices, and between EC$4.00 and EC$9.20 in Antigua and Barbuda, which has the lowest (Table 2.3). The result was similar for packs of 10 cigarettes (half pack), with the price per pack ranging between EC$3.25 and EC$5.00 in St. Kitts and Nevis, and between EC$5.00 and EC$16.00 in St. Lucia. That St. Lucia has such high cigarette prices is to be expected, as the country has been very aggressive about tobacco taxation, having the highest excise tax share in the OECS and the second highest (after Jamaica) in the CARICOM. Table 2.3: Price Ranges per Pack of 20 and 10 Cigarettes, Selected OECS Countries COUNTRIES PRICE PRICE PRICE PRICE RANGES RANGES RANGES RANGES (PACK OF (PACK OF (PACK OF (PACK OF 20s, EC$) 20s, USD) 10s, EC$) 10s, USD) Antigua and Barbuda 4.00 - 9.20 1.48 - 3.41 3.95 - 4.75 1.46 - 1.76 Grenada 6.15 - 15.00 2.28 - 5.56 3.75 - 5.50 1.39 - 2.04 St. Kitts and Nevis 3.50 - 18.87 1.30 - 6.99 3.25 - 5.00 1.20 - 1.85 St. Lucia 5.85 - 22.00 2.17 - 8.15 5.00 - 16.00 1.85 - 5.93 St. Vincent and the Grenadines 4.00 - 20.00 1.48 - 7.41 3.50 - 6.00 1.30 - 2.22 Source: WHO Report on the Global Tobacco Epidemic 2017. 10 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries The price per a pack of 20 cigarettes, for premium brands, ranged from EC$13.00 and EC$22.00 in St. Lucia to between EC$8.25 and EC$9.20 in Antigua and Barbuda. In the economy segment of the market, prices ranged between EC$5.85 and EC$8.80 in St. Lucia and between EC$4.00 and EC$6.90 in St. Vincent and the Grenadines (See Table 2.4). The observed variation can be explained. Generally, surveys in most of these countries would include from 2 to 5 establishments. In most cases, these establishments would be chosen from one category, usually supermarkets. Since these surveys do not consider pack size and brand category (premium, mid-price, and economy), another survey was needed. The survey conducted included a much wider range of categories such as bars, restaurants, restaurant and bars combinations, and supermarkets. A minimum of twenty establishments was chosen from every parish in every country. In the case of the national surveys, establishments in many instances are chosen from just a few parishes. The different sampling methods provide the most likely reason for the wider than usual price ranges. Table 2.4: Retail Price Ranges of 20 Sticks Pack of Cigarettes by Market Segment, by Country PRICE RANGES OF 20 STICKS PACK OF CIGARETTES BY MARKET SEGMENT, BY COUNTRY (EC$) Market Segment Antigua and Grenada St. Kitts and St. Lucia St. Vincent and Barbuda Nevis the Grenadines Economy 4.00 - 5.50 6.15 - 6.50 3.50 - 7.00 5.85 - 8.80 4.00 - 6.90 Mid-Price 6.00 - 8.00 7.00 - 7.95 7.50 - 10.00 9.00 - 12.95 7.00 - 10.00 Premium 8.25 - 9.20 8.25 - 15.00 13.25 - 18.87 13.00 - 22.00 12.00 - 20.00 Source: HEU-UWI survey 2017 Cigarettes remain affordable in the OECS member countries. Taxes (as a percentage of the price) and excise duties remain relatively low in some places. Tobacco affordability, as defined by the WHO in its Report on the Global Tobacco Epidemic 2017, is simply the percentage of GDP per capita required to purchase 100 packs of the most-sold brand of cigarettes—the higher the percentage of GDP, the less affordable the purchase of tobacco. Of the seven countries represented in Table 2.5 and Figure 2.4, tobacco became more affordable in 2016 in Antigua and Barbuda and St. Kitts and Nevis,10 compared to 2014. In the other five countries, the purchase of 100 packs of the most sold brand of cigarettes became less affordable. Of these, there were three countries in which the most 10 Both OECS members are classified by the World Bank as high-income countries (World Bank list of economies June 2017). 11 // The Tobacco Market in OECS Member States Table 2.5: Affordability of Tobacco Purchase in OECS Countries and Trinidad and Tobago (2008-2016) COUNTRIES AFFORDABILITY Percentage of GDP per capita 2016 compared Between 2008 required to purchase 100 packs 2014 and 2016 2016 Antigua and Barbuda 1.91 More affordable Less affordable Dominica 2.17 less affordable Little change Grenada 3.32 less affordable less affordable St. Kitts and Nevis 1.85 More affordable less affordable St. Lucia 4.2 less affordable less affordable St. Vincent and the Grenadines 3.16 less affordable Little change Trinidad and Tobago 2.54 less affordable less affordable Source: WHO Report on the Global Tobacco Epidemic 2017. Figure 2.4: Cigarette Affordability (OECS and Trinidad and Tobago) 4 REQUIRED TO PURCHASE 100 PACKS PERCENTAGE OF GDP PER CAPITA 3 2 1 0 Antigua and Dominica Grenada St. Kitts and St. Lucia Trinidad and St. Vincent Barbuda Nevis Tobago and the Grenadines 2008 2012 2016 2010 2014 Source: WHO Report on the Global Tobacco Epidemic 2017 12 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries sold brand of cigarettes was significantly less affordable: Trinidad and Tobago, St. Lucia, and St. Vincent and the Grenadines. In the case of Dominica and Grenada, the most sold brand of cigarettes became slightly less affordable. In St. Kitts and Nevis and St. Vincent and the Grenadines, the most-sold brand of cigarettes became increasingly less affordable between 2008 and 2012. In four of the seven countries (Dominica, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines), 2012 was the year in which the most-sold brand of cigarettes was least affordable. 13 // The Tobacco Market in OECS Member States 14 THE DATA ON TOBACCO1 USE IN ORGANIZATION O EASTERN CARIBB STATES (OECS) RE HIGH LEVELS OF TOBACCO USE, B AMONG ADULTS CHILDREN. THE T SYSTEMS OF THE N THE 3 CURRENT TOBACCO CONTROL OF POLICIES IN OECS MEMBER COUNTRIES BEANDespite the best efforts of educators and health practitioners to discourage the use of tobacco, only governments can stop the commercial promotion of the use of tobacco (Musgrove et al., 2000). It is widely acknowledged that tobacco consumption imposes significant burdens on societies in the form of high health care costs for tobacco- EVEAL related illnesses and the loss of labour productivity, both of which have the potential to undermine social and economic development. Consequently, it has become imperative for countries to reduce tobacco consumption as part of their overarching sustainable development plans. To curb cigarette consumption, countries generally move towards the implementation of comprehensive tobacco control measures, which usually include a mix of taxation, education and legislation. The inclusion of the World Health Organisation’s Framework Convention on Tobacco Control (WHO FCTC) in development plans is key to recognizing and controlling the smoking epidemic. The OECS member countries have all been engaged in implementing measures to control tobacco consumption. These policies BOTH include taxation, licensing, and the implementation of the WHO FCTC. Table 3.1 provides a summary of tobacco control measures and policies in OECS countries. The WHO FCTC reported that, as of 2016, Grenada, St. Lucia, and St. Vincent and the Grenadines have recent and representative data on both adults and youths. However, OECS countries have implemented limited smoke-free policies in one or two public places AND and, in the case of St. Lucia and Grenada, some cessation programmes, of which at least one is cost-covered. These countries have not yet included warnings of health risks on their packaging and, except for Antigua and Barbuda, there have been no known national anti-tobacco campaigns between 2014 and 2016. TAX E 16 12 11 MEASURES ANTIGUA AND DOMINICA GRENADA ST. KITTS AND ST. LUCIA ST. VINCENT BARBUDA NEVIS AND THE GRENADINES No known data or No known data or No known data or Recent and Recent and Recent and no recent data or no recent data or no recent data or Monitoring: representative data representative data representative data data that are not data that are not data that are not Prevalence data for both adults and for both adults and for both adults and both recent and both recent and both recent and youth youth youth representative representative representative Complete absence Complete absence Complete absence Complete absence Complete absence Complete absence Smoke-Free Policies: of ban, or up to of ban, or up to of ban, or up to of ban, or up to of ban, or up to of ban, or up to Polices on smoke-free two public places two public places two public places two public places two public places two public places environments completely smoke- completely smoke- completely smoke- completely smoke- completely smoke- completely smoke- Abbreviation: Nicotine Replacement Therapy (NRT) free free free free free free NRT11and/or some NRT and/or some Cessation NRT and/or some NRT and/or some NRT and/or some NRT and/or some cessation services cessation services Programmes: cessation services cessation services cessation services cessation services (at least one of (at least one of Treatment of tobacco (neither cost- (neither cost- (neither cost- (neither cost- Source: WHO Report on the Global Tobacco Epidemic, 201712 which is cost- which is cost- http://www.who.int/tobacco/surveillance/policy/country_profile/en/ dependence covered) covered) covered) covered) covered) covered) Health Warnings: No warnings or No warnings or small No warnings or No warnings or No warnings or No warnings or 17 // Current Tobacco Control Policies in OECS Member Countries Health warnings on small warnings warnings small warnings small warnings small warnings small warnings cigarette packages No national No national No national campaign campaign campaign National campaign Mass Media: conducted between conducted between conducted between conducted with one Anti-tobacco Data not reported July 2014 and June July 2014 and June July 2014 and June N/A to four appropriate campaigns 2016 with duration 2016 with duration 2016 with duration Table 3.1: Summary of Tobacco Measures and Policies OECS Countries characteristics of at least three of at least three of at least three weeks weeks weeks Complete absence Complete absence Complete absence Complete absence Complete absence Complete absence Advertising bans: of ban, or ban that of ban, or ban that of ban, or ban that of ban, or ban that of ban, or ban that of ban, or ban that Bans on advertising, does not cover does not cover does not cover does not cover does not cover does not cover promotion and national television, national television, national television, national television, national television, national television, sponsorship radio and print radio and print radio and print radio and print radio and print radio and print media media media media media media Taxation: Share of total taxes in the <= 25% of retail <= 25% of retail 26–50% of retail <= 25% of retail 51–75% of retail <= 25% of retail retail price of the price is tax price is tax price is tax price is tax price is tax price is tax Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries most sold brand of cigarettes Three countries—Dominica, St. Vincent and the Grenadines, and Antigua and Barbuda, do not have existing national government objectives for tobacco control (Table 3.2). However, for the three that do have these objectives, there are no data available on the specifics of each objective or its status, nor on the number of staff involved in tobacco control measures and policies or how these policies will be implemented. Notably, although the WHO FCTC recommends establishing a national agency or technical unit for tobacco control, only Grenada, Dominica and St. Lucia have been successful in doing so. In addition to introducing national policies, OECS member countries have also used taxation to address the issue of tobacco consumption (See Table 3.3). Table 3.2: Establishment of Government Tobacco Controls in the OECS ANTIGUA ST. VINCENT ST. KITTS AND DOMINICA GRENADA ST. LUCIA AND THE AND NEVIS BARBUDA GRENADINES Specific national government No No Yes Yes Yes No objectives in tobacco control National agency or technical unit for No Yes Yes No Yes No tobacco control Source: WHO Report on the Global Tobacco Epidemic, 2017 In terms of implementing the WHO FCTC, the United Kingdom Overseas Territories (UKOT)—Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Montserrat, and the Turks and Caicos Islands—fall under the aegis of the United Kingdom and therefore cannot sign on to the Convention as individual countries. Nevertheless, to advance the FCTC goals, the British Virgin Islands, the Cayman Islands, the Turks and Caicos Islands, and Bermuda have passed Tobacco Control Laws. Bermuda’s Tobacco Control Act, which was passed in 2015 and came into effect July 2016, makes it the most recent BOT to enact tobacco control legislation. The other Territories have implemented some of the articles of the FCTC. Specifically, they have implemented articles related to ensuring public spaces are smoke-free, banning smoking inside restaurants, requiring tobacco dealers to display health warnings at the point of sale for tobacco products, prohibiting tobacco products from being displayed within reach of customers, requiring a display of health warnings covering at least 30% of the principal display area of the tobacco packages, and prohibiting vending machine sales of tobacco products. 18 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Table 3.3: Tax and Licensing Information ANTIGUA DOMINICA GRENADA ST. KITTS ST. LUCIA ST. VINCENT AND AND AND THE BARBUDA NEVIS GRENADINES Specific Ad valorem Ad valorem Type of excise applied N/A Specific excise Specific excise Excise excise excise Uniform excise tax applied Yes (uniform), N/A Yes Yes Yes Yes Yes No (tiered/varying rates) Minimum specific tax applied in ad valorem or N/A - No No N/A No mixed excise regime Retail price used as base of ad valorem component in ad N/A - No No N/A No valorem or mixed excise regime (or retail price exclusive of VAT) Specific tax component automatically adjusted N/A … No No No No for inflation (or other) Price dispersion: share of cheapest brand price in premium brand price 50% 39.27% 64.32% 65.46% 68.75% … (the higher the% the smaller the gap) Tax stamps applied on No No No No No No tobacco products Bans or limits on duty Limited Limited Limited N/A Limited N/A free imports by travelers If duty free imports are limited, duty free 200 200 200 N/A 200 N/A allowance (number of cigarette sticks) Source: Adapted from WHO Report on the Global Tobacco Epidemic, 2017 19 // Current Tobacco Control Policies in OECS Member Countries GRENADA ST. LUCIA ST. KITTS ST. VINCENT BRITISH ANGUILLA ANTIGUA AND NEVIS AND THE VIRGIN AND GRENADINES ISLANDS BARBUDA Tobacco No No No No Yes No Yes Control Act 11 Tobacco The Tobacco Name of Act - - - - Products - Control Act Control Act Chapter 430 World Health World Health World Health World Health World Health Organization Organization Organization Organization Organization World Health Framework Various Ministry Websites. Treaty Framework Framework Framework Framework Organization and Convention Agreement Convention on Convention on Convention on Convention on Pan American on Tobacco Tobacco Control Tobacco Control Tobacco Control Tobacco Control Health Organisation Control (WHO FCTC) (WHO FCTC) (WHO FCTC) (WHO FCTC) (WHO FCTC) Year of 2007 2005 2011 2010 - - 2006 Ratification - Price and - Price and - Price and -Reduce affordability - Price and tax tax measures tax measures tax measures of tobacco products measures to to reduce the to reduce the to reduce the by increasing reduce the demand demand for demand for demand for tobacco excise taxes Table 3.4: Tobacco Control Acts/Measures13 for tobacco Source: WHO Report on the Global Tobacco Epidemic, 2017. tobacco tobacco tobacco - Create by law - Protection - Protection - Protection - Protection completely smoke- from exposure to from exposure to from exposure to from exposure to free environments tobacco smoke tobacco smoke tobacco smoke tobacco smoke in all indoor - Packaging and - Packaging - Packaging - Packaging workplaces, public labeling of tobacco and labeling of and labeling of and labeling of -Packaging places and public products tobacco products tobacco products tobacco products -Advertising transport Provisions - Tobacco - Tobacco - Tobacco - Tobacco -Promotion - Warn people of the advertising, advertising, advertising, advertising, -Distribution dangers of tobacco promotion and promotion, and promotion and promotion and and tobacco smoke sponsorship sponsorship sponsorship sponsorship through effective - Demand - Demand - Demand - Demand health warnings reduction reduction reduction reduction and mass media measures measures measures measures campaigns concerning concerning concerning concerning -Ban all forms of tobacco tobacco tobacco tobacco tobacco advertising, dependence and dependence and dependence and dependence and promotion and cessation cessation cessation cessation sponsorship 20 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Table 3.5: Legislative Controls as at 2016 GRENADA ST. LUCIA ST. KITTS AND ST. VINCENT ANTIGUA AND NEVIS AND THE BARBUDA GRENADINES Other smoked Other smoked Other smoked Other smoked Other smoked Cigarettes Cigarettes Cigarettes Cigarettes Cigarettes Smokeless Smokeless Smokeless Smokeless Smokeless tobacco tobacco tobacco tobacco tobacco tobacco tobacco tobacco tobacco tobacco Type of tobacco warnings Does the law mandate that health No No No No No No No No No No No No No No No warnings appear on tobacco packages? Are there any laws requiring that tobacco packaging and labelling do not use misleading terms which imply No No No No No No No No No No No No No No No the product is less harmful than other similar products, such as “low tar”, “light”, “ultra-light”, or “mild”? Are there any laws requiring that tobacco packaging and labelling do not use figurative or other signs, including No No No No No No No No No No No No No No No colours or numbers, as substitutes for prohibited misleading terms and descriptors? Are there any laws requiring that tobacco packaging No No No No No No No No No No No No No No No and labelling do not use descriptors depicting flavours? Does the law ban the display of quantitative information on emission yields (such as tar, nicotine and No No No No No No No No No No No No No No No carbon monoxide) on tobacco packaging, including when used as part of a brand name or trademark? Does the law mandate the display of qualitative information on No No No No No No No No No No No No No No No relevant constituents and emissions of tobacco products on tobacco packaging? 21 // Current Tobacco Control Policies in OECS Member Countries Table 3.5: Legislative Controls as at 2016 GRENADA ST. LUCIA ST. KITTS AND ST. VINCENT ANTIGUA AND NEVIS AND THE BARBUDA Other smoked GRENADINES Other smoked Other smoked Other smoked Other smoked Cigarettes Cigarettes Cigarettes Cigarettes Cigarettes Smokeless Smokeless Smokeless Smokeless Smokeless tobacco tobacco tobacco tobacco tobacco tobacco tobacco tobacco tobacco tobacco Type of tobacco warnings Does the law prevent the display of expiry No No No No No No No No No No No No No No No dates on tobacco packaging? Is it mandatory for the quit line number to appear No No No No No No No No No No No No No No No on packaging or labelling? Does the law mandate plain packaging (i.e. prohibit the use of logos, colours, brand images or promotional No No No No No No No No No No No No No No No information on packaging other than brand names and product names displayed in a standard colour and font style)? Source: WHO Report on the Global Tobacco Epidemic, 2017. Table 3.4 provides a comprehensive review of the specific Tobacco Control Act elements implemented in Grenada, St. Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, the British Virgin Islands, and Antigua and Barbuda to advance the FCTC goals. In the absence of their own Tobacco Control Acts, these countries have adopted, and in some instances ratified, FCTC measures with various provisions. From Table 3.5, it is evident that while many legislative measures have not yet been implemented, there is certainly movement towards implementation of the elements of the FCTC measures, to curb tobacco consumption. 22 THE DATA ON TOBACCO1 USE IN ORGANIZATION O EASTERN CARIBB STATES (OECS) RE HIGH LEVELS OF TOBACCO USE, B AMONG ADULTS CHILDREN. THE T SYSTEMS OF THE N THE 4 TOBACCO TAX SYSTEM, OF TAX STRUCTURES AND EXCISE TAX BURDEN OECS MEMBER STATES BEANThere are five main categories of tobacco taxes in effect in the selected member countries of the OECS—import duty/common external tariff, excise tax, value added EVEAL tax, customs service charge, and revenue recovery charge (Table 4.1). Annex III provides further details of OECS members’ current cigarette excise tax structures. Most notably, there are different rates at which these tobacco taxes are imposed. The heterogeneity of the tobacco tax systems and structures in the OECS must be addressed if the tobacco taxes in the OECS are to be harmonized successfully. The analysis of the tobacco tax structure excludes Dominica. In the countries for which the tax analysis was conducted (Antigua and Barbuda, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines), import duties are generally applied as ad valorem taxes on a base of Cost Insurance and Freight (CIF) value, except in the case of St. Kitts and Nevis, which applies a specific import duty on BOTH cigarettes of EC$18 per kilogram. Excise taxes vary widely, both by type and in terms of rates. While Grenada and St. Kitts and Nevis levy an ad valorem excise tax of 20% and 105%, respectively, St. Vincent and the Grenadines and St. Lucia apply specific excise taxes that are equivalent to EC$15.5 and EC$176 per thousand sticks, respectively. Meanwhile, Antigua and Barbuda levy no excise taxes on cigarettes at all. Moreover, Customs Service Charge (CSC) is applied in all countries except Antigua and Barbuda, which has AND implemented a Revenue Recovery Charge of 10% of CIF value. Value Added Tax (VAT) rates of 12% (St. Lucia), 15% (Grenada, Antigua and Barbuda), 16% (St. Vincent and the Grenadines) and 17% (St. Kitts and Nevis), are also levied on tobacco products across the countries. The Import Duties and VAT have the least variance among countries (Table 4.1). Table 4.2 presents a snapshot of tax revenues from tobacco products for OECS countries TAX for 2015, except for St. Kitts and Nevis for which the data presented are for 2013. For Grenada, excise taxes contribute 72% of total tax revenue from tobacco products, while St. Lucia in they amount to 77%. Both countries outstrip other OECS states in terms of overall revenues collected. E 24 TAXES ANTIGUA & BARBUDA GRENADA (2017) ST. KITTS AND NEVIS ST. LUCIA (2017) ST. VINCENT AND THE (2017) (2017) GRENADINES (2017) Rate Base Rate Base Rate Base Rate Base Rate Base 5% - stemmed/ striped tobacco 45% - cigars, 35% - Cigar and 35% - cigarettes EC$18 - cigarettes, and cigarettes Import 35% - cigarettes 5% - tobacco cigarettes other forms 5% - raw Duty (Rate effective C.I.F. CIF per kg CIF CIF (Rate effective (Rate effective of tobacco tobacco (ID)/CET prior to 2011) prior to 2011) prior to 2008) and tobacco Rate effective products. prior to 2011) (Rate effective prior to 2011) EC$176 per 14% - cigars 1,000 Sticks on EC$1.55 per cigarettes 100 cigarettes - Revenue Recovery Charge, EXT: Excise Tax, ID – Import Duty 105% - 20% - CSC+ EC$125.60 per 6% raw tobacco cigarettes cigarettes CSC+ ID Excise Tax CET+ kg on cigars and 12% other (Rate effective (Rate effective ID +CIF CIF other tobacco 6% - tobacco 2014) prior to 2014) products. substitute (Rate effective (Rate effective Source: Statistical offices and Customs and Excise Divisions of OECS countries. 2013) 2012) EXT+ CSC+ Table 4.1: Tax Rates and Tax Bases in Selected OECS Countries Value 15% 15% 17% EXT+ 12% EXT 16% CSC EXT+ Added (Rate effective CIF+ID (Rate effective (Rate effective CSC+ (Rate effective +CSC+ (Rate effective +CET+ ID Tax prior to 2011) prior to 2011) 2010) ID 2017) ID+CIF 2017) CIF +CIF 25 // Tobacco Tax System,Tax Structures and Excise Tax Burden OECS Member States Customs 6% 6% 6% 5% EXT+ CET+ Service (Rate effective (Rate effective ID (Rate effective ID+CIF (Rate effective ID CIF Notes: CET - Common External Tariff, CSC - Customs Service Charge, CIF - Cost Insurance and Freight, RRC Charge prior to 2011) prior to 2014) 2015) 2017) +CIF Other 10% taxes (Rate effective CIF (RRC) prior to 2011) Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Table 4.2: Tax Revenues from Tobacco Products OECS Countries COUNTRIES ST. KITTS ST. VINCENT GRENADA ST. LUCIA ANTIGUA DOMINICA AND AND THE AND NEVIS GRENADINES BARBUDA Is tax revenue data for All Tobacco All Tobacco All Tobacco All Tobacco All Tobacco All Tobacco all tobacco products or Products Products Products Products Products Products cigarettes only? Year 2013 2015 2015 2015 2015 2015 Currency XCD XCD XCD XCD XCD XCD Total Excise1 220,269 705,427 8,178,933 9,905,000 - 354,846 VAT and other sales taxes 225,620 1,315,703 2,429,344 2,455,000 403,470 76,261 Import duties and all 209,788 524,106 810,112 521,000 515,123 98,381 other taxes 2 Total 655,677 2,545,236 11,418,390 12,881,000 918,593 529,488 Notes: 1Specific and ad valorem. 2 Excluding corporate taxes on tobacco companies. XCD: Eastern Caribbean Dollars Source: WHO Report on the Global Tobacco Epidemic, 2017 26 THE DATA ON TOBACCO1 USE IN ORGANIZATION O EASTERN CARIBB STATES (OECS) RE HIGH LEVELS OF TOBACCO USE, B AMONG ADULTS CHILDREN. THE T SYSTEMS OF THE N THE 5 MODELING THE FISCAL OF IMPACT OF TOBACCO TAX POLICY REFORMS IN OECS MEMBER STATES BEAN5.1. Tobacco Excise Tax - Modelling Harmonization Simulation Framework EVEAL The proposed simulations are being modeled within the harmonization policies adopted by the OECS treaty of Basseterre,14 and the revised treaty Articles: ũũ Article 13.3 relates to the harmonization policies of the Economic Union;15 ũũ Article 15.2 “Protocol Member States agree to the progressive harmonization of their fiscal policies and fiscal incentives regimes”. 5.2. Increasing Specific Excise Taxes as OECS Tobacco Harmonization: Best Practice There is consensus that specific excise taxes, which are levied per pack of cigarettes as opposed to net weight or other criteria, are the most efficient instruments to discourage BOTH cigarette consumption (WHO 2015). Following regional best practices (e.g., EU, 16 SACU, ECOWAS), the harmonized simulations assess the feasibility and impact of taxes on both government revenue and consumption reduction for the selected OECS member states. Alternatives include adopting a specific excise tax, increasing it when already in place, or adopting a mixed system, adding a uniform specific excise tax to the existing ad valorem AND excise tax. Policy Option 1 (Scenario 1) builds on the excise tax structure status quo. It suggests the implementation of a mixed system for countries that currently apply ad valorem excise taxes, by adding specific excise taxes to the structure. Countries that already have TAX 14 OECS. Revised treaty of Basseterre establishing the organisation of eastern Caribbean states economic union. 2010;1–43. 15 “13.3 This pursuit shall be linked to the harmonisation, consistent with the status of an Economic Union, of the following policy programme areas – (a) fiscal; (b) monetary; (c) trade; (d) international economic relations; (e) incomes; (f ) structural; (g) social; (h) envi- ronmental; and (i) other programme areas as identified by the OECS Authority. 16 The EU tobacco excise duty directive requires Member States to levy a minimum overall excise duty on cigarettes: At least €90 per 1000 cigarettes, and at least 60% of the weighted average retail selling price. Member states that apply an excise duty of €115 or more, however, do not need to comply with the 60% requirement. E 28 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries specific excise taxes in place will only experience rate changes. For all countries, the specific excise tax will be gradually increased to achieve an average excise tax burden of at least 30% (i.e., excise tax as percentage of average retail price) by 2021. Policy Option 2 (Scenario 2) presents a harmonized uniform specific excise tax of EC$4.00 per 20-cigarette pack for OECS countries to adopt by 2021. This option assumes gradual specific excise tax increases. Specific excise taxes are an effective measure to reduce tobacco consumption. Policy Option 2 includes a full replacement of an ad valorem with a specific excise tax where applicable (e.g., as in Grenada and St. Kitts and Nevis) for government consideration. Annex III describes the current cigarette excise tax structure and proposed scenarios for selected OECS members. 5.3. Expected Benefit of Increasing Tobacco Tax Rates Tobacco taxes are distortionary taxes, which have a dual benefit: (i) reducing tobacco use among current tobacco smokers, and harm to others from second-hand smoke, and preventing initiation among the youth, thereby reducing the risk of tobacco- related diseases that lead to ill health, premature mortality, and disability, and cost health systems and individuals significant amounts of money for treating diseases that are often preventable; and (ii) mobilizing additional domestic revenues to expand the fiscal space and hence the capacity of the government to fund priority investments and programmes that benefit the entire population (in accordance with the 2015 Financing for Development Addis Ababa Action Agenda). 5.4. Regional Cigarettes Excise Taxes Best Practices 5.4.1. EUROPEAN UNION (EU) In the European Union definitions of tobacco products, tax structures and minimum excise duty rates are harmonized. Box 5.1 provides more information on the tobacco tax harmonization within the European Union. There are several levels on which the Member States of the European Union cooperate, such as the political and economic level. All Member States of the European Union are part of the European Union Customs Union. As a result, no custom duties on the trade in goods between the Member States of the European Union are charged. In addition, in the majority of the Member States the Euro is the official currency. To ensure the proper functioning of the common market, some harmonization of fiscal policies was needed. In the European Union the definitions of different types of tobacco products are harmonized. The following categories are defined: cigarettes, cigarillos, cigars, and smoking tobacco. In addition, a minimum rate and a tax structure have been agreed at an EU level for each category. Member States are free to apply excise duty rates above these minima, according to their national needs. 29 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States The legal provisions concerning tobacco excise duties in the European Union are laid down in Directive 2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco (hereafter the Directive). The purpose of the Directive is to ensure the proper functioning of the internal market and a high level of health protection. Rates and structures Cigarettes - rates The European obligatory minimum rates for cigarettes consist of two requirements: a. The fixed minimum amount: EU countries should levy an excise duty of at least €90 per 1000 cigarettes. b. A relative minimum: the excise duty level in EU countries should be at least 60% of the weighted average retail selling price of cigarettes (WAP).17 In principle, both requirements have to be met. However, derogation is possible from the relative minimum of 60% if an EU country levies more than €115 per 1000 cigarettes. BOX 5.1: TOBACCO TAXATION IN EUROPEAN UNION 100 90 80 70 60 50 40 30 20 10 0 AT BE BG CY CZ DE DK EE EL ES FI FR HR HU IE IT LT LU LV MT NL PL PT RO SE SI SK UK EXCISE DUTY BURDEN CIGARETTES JANUARY, 2018, IN % OF THE WEIGHTED AVERAGE PRICE 17 According to Articles 8(2) and 14(2) of Council Directive 2011/64/EU the weighted average price (WAP) for cigarettes and fine-cut tobacco must be calculated by reference to the total value of all cigarettes/fine-cut tobacco released for consumption, based on the retail selling price, including all taxes, divided by the total quantity of cigarettes/fine-cut tobacco released for consumption, based on data relating to all such releases for consumption made in the preceding calendar year. 30 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries In 2017, the EU average excise duty level was approximately €146 per 1000 cigarettes, while the average proportion between the excise duty and the weighted average price across EU countries was approximately 62%, excluding VAT. The rates should be the same for all cigarettes. Cigarettes – structure The EU rules require that cigarettes are taxed according to a ‘mixed structure’ which includes the following: a. A specific component of between 7.5% and 76.5% of the total tax burden (TTB) - expressed as a fixed amount per 1000 cigarettes; b. An ad valorem component - expressed as a percentage of the maximum retail selling price. Impact on countries During the last decade, the following trends were visible in the EU-28 region18: ũũ Decline of consumption of cigarettes; ũũ Increase or stable excise duty rates; ũũ Increase or stable revenue from excise duties; and ũũ Increase of average excise duty collected per 1000 cigarettes. Lessons Learned Getting unanimous agreement from 28 Member States on the revision of legislation is a challenge. Revising the minimum excise duty rates applied to manufactured tobacco requires the consent of all Member States. The European Union found that a successful approach was to set minimum rates at a relatively high level and to give countries that are well below those rates a transitional period. The countries with a transitional period were obliged to gradually increase their rates to reach the minimum between 2011 and 2017. Way forward Recently, in the context of an evaluation process, the European Commission announced that the minimum rates and structures applicable under the Directive will be reviewed. According to Article 19, paragraph 1, of the Directive, the Commission is required to submit a report on the rates and structures of excise duty every four years. By 2019, when the next report and possible revision are due, it will have been almost 10 years since the current minimum rates were adopted and no correction for inflation has been applied. Bearing in mind the serious harm to health from tobacco products, it should be considered that the 18 Source: European Union - European Commission, DG Taxation and Customs Union, Unit C2 Indirect Taxation. 31 // The Tobacco Market in OECS Member States Treaty on the functioning of the European Union requires a high level of protection for public health and that the EU is a Party to the Framework Convention on Tobacco Control (WHO FCTC). For these reasons, the Commission believes that it is time to examine the need to increase the minimum rates. The evaluation of the minimum rates and structures applied to manufactured tobacco started in 2018. 5.4.2. THE ECONOMIC COMMUNITY OF WEST AFRICAN STATES (ECOWAS) Box 5.2 provides a snapshot of the harmonization of tobacco taxes in Economic Community of West African States (ECOWAS). BOX 5.2: ECOWAS TOBACCO EXCISE TAX STRUCTURE To harmonize tobacco taxation policy in the framework of the community provisions regulating tobacco taxation in the Economic Community of West African States (ECOWAS), the ECOWAS member countries have agreed to a new draft directive. This directive provides for the adoption of a minimum ad valorem tax of 50%, the elimination of all tax exemptions on tobacco products (Article 6),1 and the obligatory application of a combination of ad valorem and specific taxes. Article 7 states that: The taxable amount for the ad valorem duty on the value is calculated: a. For import products, by the customs value plus duties and taxes levied on entry, except for VAT and excise duty; b. For locally-manufactured products, by the ex-factory selling price or output price, excluding VAT and excise duty. 1 Article 6 requires member states, to “make tobacco products subject to an excise duty, which must include an ad valorem duty and a specific duty.” 5.4.3. SOUTHERN AFRICAN CUSTOMS UNION (SACU)19 SACU provides another example of how harmonization of the tobacco taxation can be undertaken with success. In this case, all member states levy the same excise tax on excisable products (primarily tobacco and alcohol). Box 5.3 provides further details. 19 Tobacco tax harmonization in the Southern African Customs Union: Possible Lessons for the Organisation of East Caribbean States (OECS), Corne van Walbeek, Professor of Economics, School of Economics and Principal Investigator, Economics of Tobacco Control Project, Southern Africa Labour and Development Research Unit, University of Cape Town, South Africa, May 2018.. 32 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries BOX 5.3: TAX HARMONIZATION IN SACU REGION20 The Southern African Customs Union (SACU) was founded in 1910, and consisted, at the time, of the Union of South Africa and three surrounding British protectorates, namely Swaziland, Bechuanaland (now called Botswana), and Basutoland (now called Lesotho) (Gibb, 2006). In 1990 Namibia became SACU’s fifth member after it gained its independence from South Africa. SACU is the world’s oldest customs union. The four smaller countries in SACU are often referred to as the BLNS (Botswana, Lesotho, Namibia and Swaziland) countries. As a customs union, SACU allows free movement of goods and services between members and imposes a common tariff on imports from outside the customs union. All customs duty revenues are deposited in a Common Revenue Pool, which is then subdivided according to an agreed formula between the five members. SACU is not a monetary union, because each country has its own currency. However, three of the countries (Lesotho, Swaziland and Namibia) have currencies that are linked one-to-one to the South African rand. This simplifies the imposition of customs and other taxes on all member countries. The Botswana pula is not linked to the rand, but is determined by market forces. Importantly, SACU differs from most other customs unions, in that it imposes the same excise tax on excisable products (primarily tobacco and alcohol) in all member states. Under the 1969 SACU agreement, which replaced the original 1910 agreement, South Africa had sole discretion in setting the excise tax structure and rate for the SACU region. Thus, all SA excise taxes were applicable in the other member countries. From the 2002 amendment of the agreement, all SACU member states became responsible for determining excise taxes. However, South Africa remains the main influencer of excise taxes in the region. Currently the excise tax on cigarettes in SACU is R15.52 (about 1.25 USD) per pack. Since its inception in 1910, the excise tax on tobacco products has been implemented as a uniform specific tax. This is generally recognised as the most efficient excise tax structure, from both a public health and fiscal perspective (WHO, 2011 and FCTC Article 6 Guidelines). Between 1994 and about 2004, South Africa (and thus all SACU member states) used increases in the excise tax as an effective tobacco control strategy. Aggregate cigarette consumption dropped by about a third over this period, and per capita consumption decreased by an even greater proportion (van Walbeek, 2005, National Treasury, multiple years). However, since 2005, the South African government’s enthusiasm for tobacco control has waned. Even though the excise tax has increased in line with South Africa’s inflation (and sometimes by a bit more), the aggressive tax increases of the middle- and late-1990s (and other tobacco-related legislative interventions) are something of the past. Predictably, the rate of decrease in cigarette consumption and smoking prevalence has slowed down substantially since 2005. 20 South Africa has comprehensive statistics about trends in smoking prevalence, but this is not the case for the neighbouring coun- tries. It seems likely that the other SACU countries have experienced similar changes in smoking prevalence over this period, given that they were subject to similar economic forces. Botswana is likely to be an exception, since it implemented an additional levy in 2014 which substantially increased the price of cigarettes. 33 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States The norm for most customs unions is to allow members to determine the structure and level of excise taxes independently of other members’ excise tax structures and levels. For those countries, the revenues accrue to the country that levied the excise tax. In SACU, all excise tax revenues (and customs duty revenues) are deposited in the Common Revenue Fund. A defining characteristic of SACU is the difference in size and economic influence between South Africa and the BLNS countries. South Africa accounts for more than 85% of the population and more than 90% of the total GDP of SACU. While decisions with respect to customs and excise duties are, in principle, taken by all members, in practice South Africa has a near-monopoly on decision-making power. To compensate the smaller members for this loss of sovereignty, the SACU agreement, from its inception, distributed the revenues in the Common Revenue Pool in a way that substantially advantages the BLNS countries. To illustrate, even though the BLNS countries comprise less than 10% of the SACU GDP, they receive about 55% of the total customs and excise revenue that is collected in the Common Revenue Pool (Botswana 22%, Lesotho 7%, Namibia 19% and Swaziland 7%) (SACU, 2016). In 2008 Botswana introduced an additional country-specific levy on alcohol, over and above the SACU-imposed excise tax (Pitso and Obot, 2011). This extra levy was driven by the President of the country, who was particularly opposed to alcohol use and misuse. The revenue that was collected through this levy did not go into the Common Revenue Pool but was dedicated to support alcohol-reduction strategies in Botswana. This additional levy on alcohol was deemed so successful that the country imposed a similar levy of 30% on the ex-works price for locally produced cigarettes, or the CIF value for imported cigarettes in 2014. A survey, conducted by the University of Cape Town, of cigarette retail prices reveals that, unsurprisingly, cigarette prices are substantially higher (by an average of 62%) in Botswana than in the other four SACU member countries. In the other four countries cigarette prices are broadly similar. Despite the tobacco industry’s claims that the Botswana levy would encourage large-scale cross-border smuggling, there is no evidence of this. In fact, the country with the largest illicit trade problem seems to be South Africa (Liedeman and Mackay, 2016). 34 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries 5.5. Summary Cigarette Retail Price and Tax Burden Projections – 2018-2021 Policy Option 1. The OECS members’ policy options assessed under Scenario 1 (see Table 5.1) would significantly increase the average tax burden (total tax per 20-cigarette pack as a percentage of average retail price) mainly for Antigua and Barbuda and St. Kitts and Nevis. The excise tax burden for these countries would rise from a base as low as zero (Antigua and Barbuda), or close to zero (0.9% St. Kitts and Nevis), to a high of about 30.3% and 32.7%, respectively, in 2021. St. Vincent and the Grenadines would also require a significant excise tax increase from its current tax burden of under 4% to a proposed 30.6% by 2021. For other OECS countries, Grenada (with 22% excise tax burden at the outset) would reach the target of over 30% as early as 2019, and 40% by 2021. St. Lucia, already above a 33% excise tax burden, would also reach 40% by 2021. St. Lucia and Grenada, having higher excise taxes, also have a higher average total tax burden (total tax - import duty, customs excise, and VAT - as percentage of price). The current average for 2018 is projected to be close to 52% and 41% respectively for these countries. The proposed Scenario 1 would increase the total tobacco tax burden to 57% in St. Lucia by 2021 and just under 58% in Grenada; both will remain below the 75% recommended by WBG (1999) and WHO (2015) (see Table 5.1). St. Vincent and the Grenadines, Antigua and Barbuda, and St. Kitts and Nevis have an average total tax burden of close to 20%. These averages are mainly the result of the common external tariff (CET), customs service charge (CSC) and VAT. The proposed Scenario 1 increases would bring the total tax burden to between 48% and 50% of the average retail price per pack for the three countries. 35 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States Table 5.1: OECS Excise Tax Harmonization: Summary Cigarette Retail Price and Tax Burden Projections - Simulation Policy Option 1 - Scenario 1 Outputs: 2017 – 2021 OECS CIGARETTES TAX BURDEN - SUMMARIZED BASELINE PROJECTED OPTION 1 FORECAST MEMBER OUTPUT (SCENARIO 1) 2017 2018 2019 2020 2021 Average cigarette price (EC$)/per pack 7.93 7.98 10.72 13.83 18.86 Average cigarette price (US$ per pack) $2.94 $2.96 $3.97 $5.12 $6.99 Average excise tax burden (excise tax as percentage of price) 21.7 21.5 32.5 35.8 40.0 Grenada Average tax burden (total tax - import, customs, excise, and VAT 40.9 40.7 50.2 53.6 57.7 - as price%) Specific excise tax (EC$)/ per pack 0 0 1.75 2.63 3.94 Ad valorem excise tax (%) 105% 105% 105% 105% 105% Average cigarette price (EC$)/per pack 10.04 10.41 11.76 13.77 16.52 Average cigarette price (US$ per pack) $3.72 $3.85 $4.35 $5.10 $6.12 Average excise tax burden (excise tax as percentage of price) 35.1 33.8 35.9 38.3 40.0 St. Lucia Average tax burden (total tax - import, customs, excise, and VAT 52.9 51.8 53.3 55.2 56.7 - as price%) Specific excise tax (EC$)/ per pack 3.52 3.52 4.22 5.28 6.60 Ad valorem excise tax (%) 0% 0% 0% 0% 0% Average cigarette price (EC$)/per pack 7.92 7.96 8.70 10.81 15.82 Average cigarette price (US$ per pack) $2.93 $2.95 $3.22 $4.00 $5.86 St. Vincent Average excise tax burden (excise tax as percentage of price) 3.9 3.9 8.9 17.9 30.6 and the Average tax burden (total tax - import, customs, excise, and VAT Grenadines 19.9 19.9 25.0 34.3 47.3 - as price%) Specific excise tax (EC$)/ per pack 0.31 0.31 0.78 1.94 4.84 Ad valorem excise tax (%) 0% 0% 0% 0% 0% Average cigarette price (EC$)/per pack 7.60 8.00 10.63 14.04 19.79 Average cigarette price (US$ per pack) $2.81 $2.96 $3.94 $5.20 $7.33 Average excise tax burden (excise tax as percentage of price) 0 0 14.1 21.4 30.3 Antigua and Barbuda Average tax burden (total tax - import, customs, excise, and VAT 19.8 20.1 32.8 40.2 48.6 - as price%) Specific excise tax (EC$)/ per pack 0 0 1.50 3.00 6.00 Ad valorem excise tax (%) 0% 0% 0% 0% 0% Average cigarette price (EC$)/per pack 8.84 9 11.56 14.04 18.82 Average cigarette price (US$ per pack) $3.27 $3.33 $4.28 $5.20 $6.97 Average excise tax burden (excise tax as percentage of price) 0.9 0.9 14.1 22.4 32.7 St. Kitts and Nevis Average tax burden (total tax - import, customs, excise, and VAT 19.7 19.6 32.0 39.6 49.2 – price%) Specific excise tax (EC$)/ per pack 0 0 1.50 3.00 6.00 Ad valorem excise tax (%) 20% 20% 20% 20% 20% Source: WBG Staff projections 36 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Policy Option 2. Given that the current tax structure of the OECS countries is characterized by more than 5 different tobacco-related taxes, it may be desirable to pursue a simplification of all these taxes across the sub-region. However, in this Scenario the short-to-medium-term strategy will be to achieve harmonization of excise taxes across the region. Harmonization in this sense will mean that all countries must levy a minimum specific excise tax at the same rate. Considering the different levels of current excise taxation on tobacco, it is proposed that the harmonization process take place over a specific period, at different speeds for each country. Table 5.2 shows the modelling outputs of a harmonized cigarette excise tax through gradually-phased tax increases reaching levels of at least EC$4.00 (US$1.48) in 2021. The proposed tax increase schedule to reach a harmonized specific excise of EC$7.00 (US$2.59) by 2025 is presented in Table 5.3. If Policy Option 2 is to be adopted, both St. Kitts and Nevis and Grenada would be converting their ad valorem excise tax (20% and 105% respectively) to a uniform specific excise tax per 20 cigarette pack. As in Policy 1 proposal, Antigua and Barbuda and St. Kitts and Nevis would experience the major impact in their attempt to reach the desired harmonized uniform excise tax increase of EC$4.00 per 20-cigarette pack by 2021. The cigarette excise tax burden, measured as a percentage of average retail price, for these countries would rise from a base as low as zero (Antigua and Barbuda) or close to zero (0.9% St. Kitts and Nevis), to a high of about 25%, in 2021. St. Vincent and the Grenadines’ excise tax burden would increase from a low of under 4% to a high of close to 28% by 2021. Grenada and St. Lucia would experience less impact than other countries, with Grenada moving from under 22% to close to 32%, and St. Lucia remaining within a range of 34% to 36%. The average tobacco tax burden 21 would change from as low as 19.7% in St. Kitts and Nevis in 2017, to a high of 42% to 52% across the selected OECS countries by 2021, as shown in Table 5.2. As expected, the introduction of a harmonized uniform specific excise tax to the OECS countries, while reducing the price gaps within different price categories in-country, would bring the average retail prices from under EC$8.00 in 2017 (Antigua and Barbuda and St. Vincent and the Grenadines) to a common higher price platform, ranging between EC$12.00 and EC$16.00. The higher price of around EC$16.00 per 20-cigarette pack (US$6.00) applies to St. Kitts and Nevis and Antigua and Barbuda (both high income countries (HIC) according to the WBG classification), while the lowest price of EC$11.70 (US$4.30) is applicable to St. Lucia. 21 Measured as a total tobacco tax including ID/CET, CSC, excise, and VAT – as % of price. 37 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States Table 5.2: OECS Excise Tax Harmonization: Summary Cigarette Retail Price and Tax Burden Projections – Simulation Policy Option 2 - Scenario 2 Outputs: 2017 – 2021 OECS CIGARETTES TAX BURDEN - SUMMARIZED BASELINE PROJECTED OPTION 2 FORECAST MEMBER OUTPUT (SCENARIO 2) 2017 2018 2019 2020 2021 Average cigarette price (EC$)/per pack 7.93 7.98 9.54 11.26 12.60 Average cigarette price (US$ per pack) $2.94 $2.96 $ 3.53 $ 4.17 $4.67 Average excise tax burden (excise tax as percentage of price) 21.7 21.5 29.3 32.1 31.7 Grenada Average tobacco tax burden (total tax - ID/CET, CSC, excise, and 40.9 40.7 46.6 49.3 50.3 VAT - as% of price) Specific excise tax (EC$)/ per pack 2.70 3.50 4.00 Ad valorem excise tax (%) 105% 105% 0% 0% 0% Average cigarette price (EC$)/per pack 10.04 10.41 10.6 11.06 11.72 Average cigarette price (US$ per pack) $3.72 $3.85 $3.92 $4.09 $ 4.34 Average excise tax burden (excise tax as percentage of price) 35.1 33.8 34.4 35.5 34.1 St. Lucia Average tobacco tax burden (total tax - ID/CET, CSC, excise, and 52.9 51.8 52.3 52.0 51.7 VAT - as% of price) Specific excise tax (EC$)/ per pack 3.52 3.52 3.65 3.80 4.00 Ad valorem excise tax (%) 0% 0% 0% 0% 0% Average cigarette price (EC$)/per pack 7.92 7.96 8.67 10.57 14.43 Average cigarette price (US$ per pack) $2.93 $2.95 $ 3.21 $ 3.92 $ 5.34 St. Vincent Average excise tax burden (excise tax as percentage of price) 3.9 3.9 8.7 19.0 27.7 and the Average tobacco tax burden (total tax - ID/CET, CSC, excise, and Grenadines 19.9 19.9 24.7 33.8 44.4 VAT - as% of price) Specific excise tax (EC$)/ per pack 0.31 0.31 0.75 1.85 4.00 Ad valorem excise tax (%) 0% 0% 0% 0% 0% Average cigarette price (EC$)/per pack 7.60 8.00 9.58 11.88 16.04 Average cigarette price (US$ per pack) $2.81 $2.96 $ 3.55 $4.40 $5.93 Average excise tax burden (excise tax as percentage of price) - - 9.8 17.3 25.0 Antigua and Barbuda Average tobacco tax burden (total tax - ID/CET, CSC, excise, and 19.8 20.1 27.7 35.0 43.5 VAT - as% of price) Specific excise tax (EC$)/ per pack - 0.80 1.90 4.00 Ad valorem excise tax (%) 0% 0% 0% 0% 0% Average cigarette price (EC$)/per pack 8.84 9.00 10.58 12.29 16.04 Average cigarette price (US$ per pack) $3.27 $3.33 $3.92 $4.55 $5.96 Average excise tax burden (excise tax as percentage of price) 0.9 0.9 9.7 16.5 24.9 St. Kitts and Nevis Average tobacco tax burden (total tax - ID/CET, CSC, excise, and 19.7 19.6 27.6 33.9 41.8 VAT - as% of price) Specific excise tax (EC$)/ per pack 1.00 2.00 4.00 Ad valorem excise tax (%) 20% 20% 0% 0% 0% Source: WBG Staff projections 38 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Table 5.3: Proposed OECS Tobacco Excise Tax Harmonization Schedule 2019-2025 COUNTRY 2018 2019 2020 2021 2022 2023 2024 2025 BASELINE EXCISE TAX PER PACK OF 20s (EC$) New Excise Tax Rate (EC$ 0.80 1.90 4.00 4.75 5.50 6.25 7.00 per pack of 20) Antigua and 0 Increase per year (EC$ per Barbuda 0.80 1.10 2.10 0.75 0.75 0.75 0.75 Pack of 20) % Increase per year - 138% 111% 19% 16% 14% 12% New Excise Tax Rate (EC$ 2.70 3.50 4.00 4.75 5.50 6.25 7.00 per pack of 20) Grenada 2.24 Increase per year (EC$ per 0.46 0.80 0.50 0.75 0.75 0.75 0.75 Pack of 20) % Increase per year 21% 30% 14% 19% 16% 14% 12% New Excise Tax Rate (EC$ 1.00 2.00 4.00 4.75 5.50 6.25 7.00 per pack) St. Kitts and 0.55 Increase per year (EC$ per Nevis 0.45 1.00 2.00 0.75 0.75 0.75 0.75 Pack of 20) % Increase per year 82% 100% 100% 19% 16% 14% 12% New Excise Tax Rate (EC$ 3.65 3.80 4.00 4.75 5.50 6.25 7.00 per pack of 20) St. Lucia 3.52 Increase per year (EC$ per 0.13 0.15 0.20 0.75 0.75 0.75 0.75 Pack of 20) % Increase per year 4% 4% 5% 19% 16% 14% 12% New Excise Tax Rate (per 0.75 1.85 4.00 4.75 5.50 6.25 7.00 pack of 20) St. Vincent and the 0.31 Increase per year (EC$ per Grenadines 0.44 1.10 2.15 0.75 0.75 0.75 0.75 Pack of 20) % Increase per year 142% 147% 116% 19% 16% 14% 12% Source: HEU, Centre for Health Economics, The University of West Indies, May 2018. 5.6. Impact Assessment of Tobacco Tax Increases in the Selected OECS Member Countries To assess the fiscal revenue, price, and consumption impact of proposed tobacco tax increases in the OECS members, simulations cover 2017 baseline data (based on available 39 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States datasets provided by government agencies,22 and two scenarios for the period from 2018 to 2020/2021. The parameters and assumptions of the simulation model that was constructed are provided in detail in the tables included in Annexes I, II and III. To determine the values of price and income elasticity and their impact on tobacco consumption, retail price, and tax revenue, the scenarios assume that the range of the price elasticity of demand in two sub-groups of countries is as follows: ũũ For the OECS members classified as Upper Middle-Income countries (UMIC) by the WBG (Grenada, St. Lucia, and St. Vincent and the Grenadines),23 the ranges adopted are found in a study carried out on price and income elasticities of demand in Jamaica (UMIC)24 in 2004 (Corne van Walbeek)25 (see Annex II Table 1). ũũ It is assumed that Antigua and Barbuda, and St. Kitts and Nevis would respond to ranges observed in high-income countries (HIC) (see Annex II Table 2). This assumption is supported by the fact that both countries are recognized as high- income economies by the World Bank Group.26 BOX 5 4: TOBACCO PRICE AND INCOME ELASTICITY RANGES SELECTED FOR HIC AND UMIC Scenario Impact Assessments1 CIGARETTES TYPES HIGH INCOME UPPER MIDDLE-INCOME COUNTRIES (HIC) COUNTRIES (UMIC) Price elasticity for economy cigarettes Value (must be negative) -0.5 -0.6 Price elasticity for medium cigarettes Value (must be negative) -0.4 -0.5 Price elasticity for premium cigarettes Value (must be negative) -0.3 -0.4 Income elasticity for economy cigarettes Value (typically positive) 0.8 0.9 Income elasticity for medium cigarettes Value (typically positive) 0.6 0.7 Income elasticity for premium cigarettes Value (typically positive) 0.4 0.5 1 Meta-analyses of the relationship between tobacco prices and use suggest that the overall elasticity of demand for adults lies between -0.3 and -0.7 (CBO 2012, IARC 2011, Gallet and List 2003, Chaloupka and Warner 2000). 22 St. Lucia Customs Agency; Grenada Customs and Excise Division, Ministry of Finance (MoF); St. Vincent and the Grenadines Customs Agency; Antigua and Barbuda Customs and Excise Division; St. Kitts and Nevis Customs Department. 23 Source: World Bank list of economies (June 2017). 24 Considering that Jamaica is classified by the WBG as upper-middle income country (UMIC), the WBG team selected these elasticity ranges as appropriate for the OECS UMIC countries. 25 Economics of tobacco control in Jamaica: Will the pursuit of public health place a fiscal burden on the government? Article; January 2004; Corne van Walbeek, University of Cape Town. 26 Source: World Bank list of economies (June 2017). 40 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Box 5.4 shows the elasticities adopted for HIC that are used in the Antigua and Barbuda and St. Kitts and Nevis simulations, and the UMIC ones used for the Grenada, St. Lucia, and St. Vincent and the Grenadines projected scenarios (see detailed assumptions in Annex II): 5.6.1. GRENADA EXCISE TAX-GDP IMPACT ASSESSMENT - 2018 FORECAST, AND PROPOSED SCENARIOS Tables 5.4 and 5.5 present the revenue outputs generated by the two scenarios (see proposed changes to the current tax structure (in effect since 2014) in Annex III – Table 1) in Grenada, and the impact that such excise taxes and total tobacco government revenue contribute to the country GDP, compared to the 2017 baseline and projections for 2018. ũũ Policy Option 1: Maintain the 105% ad valorem excise tax on CIF, the Import and Customs duty per 20-cigarette pack, and adopt a specific excise tax of EC$1.75 per pack for 2019. The proposed 2019 specific excise tax rate is increased by 50% in 2020 to EC$2.63 per 20 cigarettes, and by 50% in 2021 (EC$3.94 per pack). The resultant tax structure, maintaining the 105% ad valorem tax in the next three years and adding the specific excise tax, would provide a mixed excise system. A mixed system has both a uniform specific excise rate and an ad valorem rate applied to tobacco product(s). It is the official excise system in the EU, is increasingly used in many countries, and is being adopted in the ECOWAS member countries as previously shown in Box 5.2. ũũ Policy Option 2: Adopt a harmonized uniform specific excise tax (EC$4.00 by 2021). The current ad valorem excise tax would be replaced by a uniform specific excise tax rate to EC$2.70 per pack in 2019. The specific excise tax rate in 2019 is increased by 30% in 2020 to EC$3.50 per pack, and by 14% in 2021 to EC$4.00 per pack. Most high-income countries rely heavily on the specific excise component of the tax. The uniform specific taxes are adjusted regularly to account for increases in the price level and in average incomes (e.g. SACU see Box 5.3). In Scenario 1 (Table 5.4), the tobacco excise tax revenue projected for 2019, maintaining the 105% ad valorem and adopting a uniform excise tax of EC$1.75 per 20 cigarette pack, is US$3.5 million. The total tobacco tax revenue collected (import duty, common external tariffs (ID/CET), customs service charge (CSC), excise taxes, and VAT) would increase from the US$3.4 million projected for 2018 (0.29% of GDP) to US$5.1 million in 2019 (0.42% of GDP – WBG projections), representing an additional tax revenue collection of US$1.7 million, while the expected reduction in total cigarettes taxed (as a proxy for consumption) is estimated to be 13%. 41 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States For 2020, the tobacco excise tax revenue projected, with current ad valorem tax and an additional tax of EC$2.63 per 20-cigarette pack, would be about US$4.5 million. The total tobacco tax revenue for 2020 is estimated at US$6.3 million (0.49% of GDP) and consumption would be reduced by about 10%. For 2021, the tobacco excise tax revenue projected, with the increase of the specific excise to EC$3.94 per 20-cigarette pack, would be about US$5.9 million. The total tobacco tax revenue for 2021 is projected to be equivalent to US$8.0 million (0.60% of GDP), and the estimated retail price increase of a 20-cigarette pack would contribute to decrease in the number of cigarettes taxed (as a proxy for consumption) of 14% in 2021. With Policy Option 2 (Scenario 2) (Table 5.5), which uses a harmonized uniform specific excise tax (EC$4.00 by 2021), changing the current ad valorem excise tax by a uniform specific excise tax rate of EC$2.70 per pack in 2019, the projected tobacco excise tax revenue will be close to US$2.9 million; US$3.5 million in 2020 (with EC$3.50/per pack); and US$3.8 million in 2021 (with EC$4.00/per pack). This would increase total tobacco tax revenue collected (ID/CET, CSC, excise taxes, and VAT) from US$3.4 million (0.29% of GDP), projected in 2018, to US$4.8 million in 2019 (0.39% of GDP), an additional tax revenue collection of US$1.4 million, while the total of cigarettes taxed (as a proxy for consumption) is projected to fall by 8.4%. For 2020, total tobacco tax revenue is projected to reach US$5.13 million (0.40% of GDP) and consumption to fall by 6.6%. Total tobacco tax revenue for 2021 is projected to reach US$5.6 million (0.42% of GDP). The estimated retail price increase for a 20-cigarette pack is expected to decrease the number of cigarettes taxed in 2021 by a further 4.6% over 2020 projections in this scenario. Source: HEU, Centre for Health Economics, The University of West Indies, May 2018. 42 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Table 5.4: Grenada Summary Cigarette Excise Tax GDP Impact - 2018 Forecast, and Proposed Scenario 1 Outputs 2019-2021 EXPECTED CONTRIBUTION TO GDP 0.60% 0.44% MAINTAIN THE 105% AD VALOREM EXCISE CIF/CUSTOMS DUTY PER 20 0.0160 0.042 $8.04 0.022 $6.99 $5.92 377.4 40.0 -13.5 57.7 CIGARETTES PACK, AND INCREASE THE 18.9 SPECIFIC EXCISE TAX TO EC$3.94 PER 20 C/PACK -2021 EXPECTED CONTRIBUTION TO GDP 0.49% 0.35% MAINTAIN THE 105% AD VALOREM EXCISE CIF/CUSTOMS DUTY PER 20 5.12 0.0121 0.049 $4.48 $6.28 247.2 0.017 -10.6 35.8 53.6 CIGARETTES PACK, AND INCREASE THE 13.8 SPECIFIC EXCISE TAX TO EC$2.63 PER 20 $ C/PACK -2020 EXPECTED CONTRIBUTION TO GDP 0.42% 0.29% MAINTAIN THE 105% AD VALOREM EXCISE CIF/CUSTOMS DUTY PER 20 0.0095 0.055 $5.09 0.014 $3.53 $3.97 -13.2 50.2 174.1 32.5 10.7 CIGARETTES PACK, AND ADOPT EC$1.75 SPECIFIC EXCISE TAX PER 20 C/PACK -2019 EXPECTED CONTRIBUTION TO GDP 0.29% 0.17% FORECAST (2018): MAINTAIN 105% AD 0.0054 0.009 0.063 $3.39 $2.96 $2.01 40.7 85.9 7.98 VALOREM EXCISE OF CIF/CUSTOMS 21.5 2.2 DUTY PER 20 CIGARETTES PACK EXPECTED CONTRIBUTION TO GDP 0.30% 0.18% BASELINE (2017): 105% AD VALOREM 0.0053 0.009 0.062 $3.30 $2.94 $1.96 40.9 85.9 7.93 -7.9 21.7 EXCISE OF CIF/CUSTOMS DUTY PER 20 CIGARETTES PACK GOVERNMENT REVENUE TYPE Total tobacco excise tax revenue (billion Average cigarette price (EC$)/per pack Average cigarette price (US$ per pack) Average tax burden (total tax - import, Total excise tax revenue (US$ million) (import duty, excise, and VAT, billion Average excise tax burden (excise tax Total cigarettes taxed (billion pieces) Percentage change in total cigarette (import duty, excise, and VAT, US$ Average excise tax (EC$ per 1000 Total tobacco government revenue Total tobacco government revenue excise, and VAT - as percentage of as percentage of price) sales taxed (%) million) * EC$) [1] pieces) EC$) 2 price) Source: WBG Staff estimates. 1 Note: The simulation model result of EC$5.58 million for 2016 provided the metrics to calibrate the model comparing this figure with actual revenue reported by the Grenada Customs and Excise Division, Ministry of Finance (GCED/ MOF) with a small difference of less than 0.33% which falls within a statistically acceptable range. 2 The total tobacco government revenue for cigarette taxes, including import duty, excise, and VAT, generated by the simulation model assumes that the VAT is applied along the cigarette distribution chain from customs/ex-factory to wholesale and retail points of sale. 43 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States CIGARETTES PACK 2021 (SCENARIO 2) 2020 (SCENARIO 2) GOVERNMENT REVENUE TYPE DUTY PER 20 CIGARETTES PACK EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP REPLACE THE AD VALOREM EXCISE BASELINE (2017): 105% AD VALOREM TAX RATE 30% TO EC$3.50 PER PACK VALOREM EXCISE OF CIF/CUSTOMS FORECAST (2018): MAINTAIN 105% AD INCREASE THE 2019 SPECIFIC EXCISE EC$2.70 PER PACK 2019 (SCENARIO 2) TAX TO SPECIFIC EXCISE TAX RATE TO INCREASE THE 2020 SPECIFIC EXCISE EXCISE OF CIF/CUSTOMS DUTY PER 20 TAX RATE BY 14% TO EC$4.00 PER PACK Source: WBG Staff estimates. Total cigarettes taxed (billion pieces) 0.062 0.063 0.058 0.054 0.051 Average cigarette price (EC$)/per pack 7.93 7.98 9.54 11.26 12.60 Average excise tax burden (excise tax 21.7 21.5 29.3 32.1 31.7 as percentage of price) Average tobacco tax burden (total tax - ID/CET, CSC, excise, and VAT - as 40.9 40.7 46.6 49.3 50.3 % of price) Average cigarette price (US$ per pack) $ 2.94 $2.96 $3.53 $ 4.17 $ 4.67 Average excise tax (EC$ per 1000 85.9 85.9 135.0 175.0 200.0 pieces) Total tobacco excise tax revenue (billion 0.0053 0.0054 0.0078 0.009 0.010 Proposed Policy Option 2 (Scenario 2) Outputs 2019-2021 EC$) Total tobacco excise tax revenue (US$ $ 1.96 0.18% $2.01 0.17% $ 2.89 0.24% $3.50 0.28% $3.81 0.29% million) Total tobacco government revenue (ID, 0.009 0.009 0.013 0.014 0.015 CSC, excise, and VAT, billion EC$) Total tobacco government revenue (ID, $ 0.29% $ 3.39 0.29% $4.75 0.39% $5.13 0.40% $5.57 0.42% CSC, excise, and VAT, US$ million) 3.30 Percentage change in total cigarette Table 5.5: Grenada Summary Cigarette Excise Tax GDP Impact - 2018 Forecast, and -7.9 2.2 -8.4 -6.6 -4.6 sales taxed (%) 44 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries 5.6.2. ST. LUCIA EXCISE TAX-GDP IMPACT ASSESSMENT - 2018 FORECAST, AND PROPOSED SCENARIOS Table 5.6 presents the revenue outputs generated by the two proposed scenarios (see proposed changes to the tax structure in effect since 2013 in Annex III – Table 2) for St. Lucia and the impact that excise tax and total tobacco government revenue have on the country’s GDP, compared to a 2017 baseline and projected figures for 2018. ũũ Policy Option 1: Under this scenario, St. Lucia would reach a 40% tobacco excise tax burden by 2021, like Scenario 1 for Grenada. To achieve this, the 2017- 2018 uniform specific excise tax rate27 (EC$3.52/pack) is increased by 20% (to EC$4.22/pack), by 25% (to EC$5.28/pack), and again by 25% (to EC$6.60/pack) in 2019, 2020 and 2021, respectively (see Table 5.6). For 2021, both expected GDP per capita growth and projected inflation would call for an annual increase of the uniform specific excise tax, at a minimum, of over 5%. The proposed 25% for 2021 would exceed this amount, helping to reduce the expected consumption in that year by about 8%. ũũ Policy Option 2: Adopting a harmonized uniform specific excise tax (EC$4.00 by 2021), the current uniform specific excise tax rate in scenario 2 is increased by 4% to EC$3.65 per pack in 2019. The specific excise tax rate of EC$3.65 in 2019 is increased by 4% in 2020 to EC$3.80 per pack, which is increased by 5% to EC$4.00 in 2021. As previously stated, it is recommended that member states regularly adjust the specific excise tax rate to account for increases in both the price level and in average incomes. Under Scenario 1 (Table 5.6), the tobacco excise tax revenue projected for 2019, with the increased uniform excise tax of EC$4.22 per 20-cigarette pack, is US$4.5 million (0.25% of GDP) representing an increase of close to US$0.5 million over a projected 2018 tobacco excise tax revenue of US$4.0 million (0.22% of GDP). The total tobacco tax revenue in St. Lucia would increase from the US$5.6 million projected for 2018 (0.31% of GDP) to US$6.2 million in 2019 (0.34% of GDP – WBG projections), representing an additional tax revenue collected of US$0.6 million, while the expected number of taxed cigarettes is estimated to fall by 5.2%. For 2020, the tobacco excise tax revenue projected with the increase to EC$5.28 per 20 cigarette pack tax would be about US$5.24 million. The total tobacco tax revenue for 2020 is estimated at US$7.1 million (0.37% of GDP) and consumption would be reduced by about 7.1%. For 2021, the tobacco excise tax revenue estimated with the increase to EC$6.60 per pack would be close to US$6.0 million (0.31% of GDP). 27 A uniform specific excise system maximizes the impact of retail prices overall, reducing the gap between price tiers (as well as between brands) and thereby generating higher revenues for government, at least over the short and medium terms. 45 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States The total tobacco tax revenue for 2021 is estimated at US$8.0 million (0.41% of GDP) and consumption would be reduced by about 8.1% Under Policy Option 2 (Scenario 2) in Table 5.7, with the adoption of the harmonized uniform specific excise tax approach (EC$4.00 by 2021), at a lower rate than that proposed in Scenario 1, the current uniform specific excise tax rate in Scenario 2 is increased to EC$3.65 per pack in 2019. For that excise tax increase, the projected tobacco excise tax revenue would be close to US$4.1 million and, with EC$3.80/per pack, US$4.3 million in 2020, and US$4.4 million with the harmonized excise tax of EC$4.00 per pack in 2021. This would increase the total tobacco tax revenue collected from the US$5.6 (0.31% of GDP) projected in 2018 to US$5.8 million in 2019 (0.31% of GDP), an additional tax revenue collection of US$0.2 million, while the total cigarettes taxed is estimated to remain equal. Total tobacco tax revenue for 2020 is projected to reach US$6.0 million (0.31% of GDP) and expected consumption to fall by 0.6%. Total tobacco tax revenue for 2021 is projected to increase to US$6.2 million (0.31% of GDP), and the projected number of total cigarettes taxed to fall by 2%. 46 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Table 5.6: St. Lucia Summary Cigarette Excise Tax GDP Impact 2017, 2018 Forecast, and Proposed, Scenario 1 Outputs 2019-2021 EXPECTED CONTRIBUTION TO GDP 0.41% 0.31% SPECIFIC EXCISE TAX RATE 2020 0.0162 0.049 330.0 0.022 $ 8.01 $6.02 16.52 $6.12 40.0 56.7 INCREASED BY 25% IN 2021 TO EC$6.60 -8.1 PER PACK (SCENARIO 1) EXPECTED CONTRIBUTION TO GDP 0.28% 0.37% SPECIFIC EXCISE TAX RATE 2019 0.0141 $ 7.06 0.054 264.0 $5.24 0.019 $5.10 13.77 38.3 55.2 INCREASED BY 25% IN 2020 TO EC$5.28 -7.1 PER PACK (SCENARIO 1) EXPECTED CONTRIBUTION TO GDP 0.34% 0.25% SPECIFIC EXCISE TAX RATE 2018 0.0122 0.058 $4.35 0.017 $4.51 $6.21 211.2 11.76 53.3 35.9 -5.2 INCREASED BY 20% IN 2019 TO EC$4.22 PER PACK (SCENARIO 1) EXPECTED CONTRIBUTION TO GDP 0.22% 0.31% SPECIFIC EXCISE TAX RATE 2018 0.0107 $ 5.58 $ 3.85 $3.96 0.061 0.015 176.0 10.41 33.8 51.8 MAINTAINED AT EC$3.52 PER PACK -0.1 (FORECAST) EXPECTED CONTRIBUTION TO GDP 0.23% 0.32% BASELINE 2017 (PROJECTED): SIMPLE 0.0107 $ 3.72 10.04 0.061 0.015 $5.52 $3.97 176.0 52.9 35.1 SPECIFIC EC$ 3.52 PER 20 CIGARETTES 4.7 PACK GOVERNMENT REVENUE TYPE Average tobacco tax burden (total tax - ID/ ECT, CSC, excise, and VAT - as % of price) ECT, CSC, excise, and VAT, billion EC$) 2 Average excise tax (EC$ per 1000 pieces) ECT, CSC, excise, and VAT, US$ million) Percentage change in total cigarette sales Average excise tax burden (excise tax as Total tobacco excise tax revenue (billion Total tobacco government revenue (ID/ Total tobacco government revenue (ID/ Average cigarette price (EC$)/per pack Average cigarette price (US$ per pack) Total cigarettes taxed (billion pieces) * Total tobacco excise tax revenue (US$ percentage of price) taxed (%) million) EC$) Source: WBG Staff estimates. * Source: Revenues Estimates St. Lucia Customs Agency: Tobacco Excise Revenue (2016= 10.24 EC$ million; 2017 = 10.72 EC$ million) 1 1 Note: A simulation model result of EC$10.2 million for 2016 and EC$10.7 million for 2017 provided the metrics to calibrate the model comparing the figures with actual revenue reported by the St. Lucia Customs Agency (SCA) (*) with a small difference of less than 0.05%, which falls in a statistically acceptable range. 2 The total government revenue for cigarette taxes, including ID/CET, CSC, excise, and VAT, generated by the simulation model, assumes that the VAT is applied along the cigarette distribution chain from customs/ex-factory, to wholesale and retail points of sale. 47 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States PACK (FORECAST) PER PACK, (OPTION 2) PER PACK (SCENARIO 2) PER PACK, (SCENARIO 2) GOVERNMENT REVENUE TYPE SPECIFIC EXCISE TAX RATE 2019 SPECIFIC EXCISE TAX RATE 2018 SPECIFIC EXCISE TAX RATE 2018 SPECIFIC EXCISE TAX RATE 2020 MAINTAINED AT EC$3.52 PER PACK EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP BASELINE 2017 (PROJECTED): SIMPLE INCREASED BY 4% IN 2019 TO EC$3.65 INCREASED BY 5% IN 2021 TO EC$4.00 INCREASED BY 4% IN 2020 TO EC$3.80 SPECIFIC EC$ 3.52 PER 20 CIGARETTES Source: WBG Staff estimates. Total cigarettes taxed (billion pieces) * 0.061 0.061 0.061 0.061 0.059 Average cigarette price (EC$)/per pack 10.04 10.4 10.6 11.1 11.7 Average excise tax burden (excise tax 35.1 33.8 34.4 35.5 34.1 as percentage of price) Average tobacco tax burden (total tax - ID/ECT, CSC, excise, and VAT - as 52.9 51.8 34.4 35.5 34.1 % of price) Average cigarette price (US$ per pack) $3.72 $3.85 $3.92 $4.09 $4.34 Average excise tax (EC$ per 1000 176.0 176.0 182.5 190.0 200.0 pieces) Total tobacco excise tax revenue (billion 0.0107 0.0107 0.0111 0.012 0.012 EC$) Total excise tax revenue (US$ million) $3.97 0.23% $3.96 0.22% $4.12 0.22% $4.26 0.22% $4.40 0.22% and Proposed, Policy Option 2 (Scenario 2) Outputs 2019-2021 Total tobacco government revenue (ID/ ECT, CSC, excise, and VAT, billion 0.015 0.015 0.016 0.016 0.017 EC$) [2] Total tobacco government revenue (ID/ECT, CSC, excise, and VAT, US$ $5.52 0.32% $5.58 0.31% $5.76 0.31% $5.96 0.31% $6.15 0.31% million) Percentage change in total cigarette Table 5.7: St. Lucia Summary Cigarette Excise Tax GDP Impact 2017, 2018 Forecast, 4.7 -0.1 0.1 -0.6 -2.0 sales taxed (%) 48 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries 5.6.3. ST. VINCENT AND THE GRENADINES EXCISE TAX-GDP IMPACT ASSESSMENT - 2018 FORECAST, AND PROPOSED SCENARIOS Tables 5.8 and 5.9 present the revenue outputs generated by the two scenarios (see proposed changes to the tax structure in effect since 2012 in Annex III – Table 3) for St. Vincent and the Grenadines, and the impact of excise tax and total tobacco government revenue on the country’s GDP, compared to the 2017 baseline and projected 2018 figures. ũũ Policy Option 1: The current uniform specific excise tax rate28 of EC$1.55 per 100 cigarettes (equivalent to EC$0.31/pack) has been in effect in St. Vincent and the Grenadines since 2012. Currently, the excise tax burden is under 4% of the average retail price. In a concerted OECS harmonization effort, and to reach a suggested 30% minimum excise tax burden gradually by 2021, the strategy proposed in Scenario 1 is to bring the current 2018 specific excise tax rate to EC$0.78 per 20-cigarette pack in 2019 (a 150% increase). The proposed excise tax from 2019 is then increased by 150% to EC$1.94 per 20-cigarette pack in 2020. The specific excise tax rate reached in 2020 would be increased again by 150%, to EC$4.84 per 20-cigarette pack, in 2021, reaching a 30.6% tobacco excise tax burden (see Scenario 1 outputs in Table 5.8). ũũ Policy Option 2: Adopting a harmonized uniform specific excise tax (EC$4.00 by 2021), the current uniform specific excise tax rate (EC$0.31/pack) is increased by 142% in Scenario 2 to EC$0.75 per pack in 2019. The 2019 specific excise tax of EC$0.75 per pack is then increased 147% to EC$1.85 per pack in 2020. This is further increased by 116% to the harmonized specific excise tax of EC$4.00 per pack in 2021, bringing the average excise tax burden to 28%, as shown in Table 5.9 Scenario 2. As previously stated, it is recommended that the specific excise tax rate is regularly adjusted to account for increases in the price level and in average incomes. In Scenario 1 (Table 5.8), the tobacco excise tax revenue projected for 2019, with an increased uniform excise tax of EC$0.78 per 20-cigarette pack, is US$0.6 million (0.07% of GDP). The total tobacco tax revenue collected in St. Vincent and the Grenadines would increase from the US$1.25 million (0.15% of GDP) projected in 2018 to US$1.6 million in 2019 (0.19% of GDP), an additional tax revenue collection of US$0.4 million, while the total cigarettes taxed (as a proxy for consumption) is estimated to fall by 3.1%. For 2020, the tobacco excise tax revenue projected with the tax increase to EC$1.94 per 20-cigarette pack would be about US$1.4 million. The total tobacco tax revenue for 2020 is estimated 28 A uniform specific excise system maximizes the impact of retail prices overall, reducing the gap between price tiers (as well as between brands) and thereby generating higher revenues for government, at least over the short and medium terms. 49 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States at US$2.5 million (0.23% of GDP) and consumption would be reduced by close to 9%. For 2021, the tobacco excise tax revenue projected, with the increased tax to EC$4.84 per 20-cigarette pack, would be about US$2.8 million. The total tobacco tax revenue for 2021 is estimated at US$4.3 million (0.37% of GDP) and consumption would be reduced by close to 17%. Under Policy Option 2 (Scenario 2), Table 5.9, with the adoption of the harmonized uniform specific excise tax (EC$4.00 by 2021), current excise tax increases from EC$0.31, effective since 2012, to EC$0.75 per pack. The estimated tobacco excise tax revenue will be close to US$0.6 million (0.07% of GDP); with EC$1.85/per pack, it would be US$1.3 million in 2020 (0.12% of GDP), and with EC$4.00 per pack, US$2.4 million (0.21% of GDP) in 2021. This would increase total tobacco tax revenue collected from US$1.25 (0.15% of GDP), projected in 2018, to US$1.6 million in 2019 (0.19% of GDP), an additional tax revenue of US$0.4 million, while the total of cigarettes taxed is estimated to fall by 2.9%. Total tobacco tax revenue for 2020 is projected to reach US$2.5 million (0.23% of GDP) and expected consumption would fall by 8%. For 2021, total tobacco tax revenue is projected to reach US$3.9 million (0.33% of GDP) with expected consumption falling by 13.5%. 50 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Table 5.8: St. Vincent and the Grenadines Summary Cigarette Excise Tax GDP Impact - 2018 Forecast, and Proposed Scenario 1 Outputs 2019-2021 EXPECTED CONTRIBUTION TO GDP 0.24% 0.37% SPECIFIC EXCISE TAX RATE 2020 0.0076 $4.30 $5.86 242.2 $2.82 0.031 0.012 -16.8 30.6 47.3 INCREASED BY 150% TO EC$4.84 PER 20 15.8 CIGARETTES PACK IN 2021 (SCENARIO 1) EXPECTED CONTRIBUTION TO GDP 0.23% 0.12% SPECIFIC EXCISE TAX RATE 2019 0.0037 $4.00 0.038 0.007 $2.54 $1.35 34.3 96.9 -8.8 10.8 17.9 INCREASED BY 150% TO EC$1.94 PER 20 CIGARETTES PACK IN 2020 (SCENARIO 1) EXPECTED CONTRIBUTION TO GDP 0.07% 0.19% SPECIFIC EXCISE TAX RATE 2018 0.0016 0.004 $0.59 0.041 $3.22 $1.62 38.8 25.0 INCREMENTED 150% TO EC$0.78 PER 20 -3.1 8.9 8.7 CIGARETTES PACK IN 2019 (SCENARIO 1) EXPECTED CONTRIBUTION TO GDP 0.03% 0.15% 2018 FORECAST: SIMPLE SPECIFIC EC$ 0.0007 0.003 0.043 $0.25 $2.95 $1.25 7.96 19.9 15.5 1.55 PER 100 CIGARETTES (EC$0.31/20 0.8 3.9 CIGARETTES PACK) EXPECTED CONTRIBUTION TO GDP 0.03% 0.15% BASELINE (2017): SPECIFIC EXCISE EC$1.55 0.0006 0.003 0.042 $0.23 $2.93 $1.18 7.92 19.9 15.5 PER 100 CIGARETTES 3.9 3.9 GOVERNMENT REVENUE TYPE Average excise tax (EC$ per 1000 pieces) CET, CSC, excise, and VAT, billion EC$)2 CET, CSC, excise, and VAT, US$ million) Percentage change in total cigarette sales excise, and VAT - as percentage of price) Average excise tax burden (excise tax as Total tobacco excise tax revenue (billion Total tobacco government revenue (ID/ Total tobacco government revenue (ID/ Average cigarette price (EC$)/per pack Average cigarette price (US$ per pack) Average tax burden (total tax - import, Total cigarettes taxed (billion pieces) * Total excise tax revenue (US$ million) percentage of price) taxed (%) EC$)1 Source: WBG Staff estimates. 1 Note: The simulation model result of EC$0.63 million for 2016 provided the metrics to calibrate the model comparing this figures with actual revenue reported by the St. Vincent and the Grenadines Customs Agency (*) with a small difference of less than 0.7% which falls within a statistically acceptable range. 2 The total tobacco government revenue for cigarette taxes, including import duty, excise, and VAT generated by the simulation model, assumes that the VAT is applied along the cigarette distribution chain from customs/ex-factory to wholesale and retail points of sale. 51 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States CIGARETTES PACK) EC$1.55 PER 100 CIGARETTES GOVERNMENT REVENUE TYPE PER PACK IN 2021 (SCENARIO 2) BASELINE (2017): SPECIFIC EXCISE EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP PACK IN 2019 IS INCREASED 147% TO PACK IN 2018 IS INCREASED 142% TO 1.55 PER 100 CIGARETTES (EC$0.31/20 SPECIFIC EXCISE TAX OF EC$0.31 PER SPECIFIC EXCISE TAX OF EC$ 0.75 PER 2018 FORECAST: SIMPLE SPECIFIC EC$ IN 2020 IS INCREASED 116% TO EC$4.00 SPECIFIC EXCISE TAX OF $1.85 PER PACK EC$0.75 PER PACK IN 2019 (SCENARIO 2) EC$1.85 PER PACK IN 2020 (SCENARIO 2) Source: WBG Staff estimates. Total cigarettes taxed (billion pieces) * 0.042 0.043 0.042 0.038 0.033 Average cigarette price (EC$)/per pack 7.92 7.96 8.7 10.6 14.4 Average excise tax burden (excise tax 3.9 3.9 8.7 19.0 27.7 as percentage of price) Average tax burden (total tax - import, excise, and VAT - as percentage of 19.9 19.9 8.7 19.0 27.7 price) Average cigarette price (US$ per pack) $2.93 $ 2.95 $ 3.21 $ 3.92 $ 5.34 Average excise tax (EC$ per 1000 15.5 15.5 37.5 92.5 200.0 pieces) Total tobacco excise tax revenue (billion 0.0006 0.0007 0.0016 0.004 0.007 EC$) Total tobacco excise tax revenue (US$ $ 0.03% $ 0.25 0.03% $ 0.58 0.07% $ 1.31 0.12% $ 2.44 0.21% million) 0.23 Total government revenue in billion 0.003 0.003 0.004 0.007 0.010 EC$) Total tobacco government revenue US$ $ $ $ $ 1.18 0.15% 0.15% $ 1.60 0.19% 0.23% 0.33% - 2018 Forecast, and Proposed Policy Option (Scenario 2) Outputs 2019-2021 million 1.25 2.48 3.86 Percentage change in total cigarette 3.9 0.8 -2.9 -8.1 -13.5 sales taxed (%) Table 5.9: St. Vincent and the Grenadines Summary Cigarette Excise Tax GDP Impact 52 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries 5.6.4. ANTIGUA AND BARBUDA EXCISE TAX-GDP IMPACT ASSESSMENT - 2018 FORECAST, AND PROPOSED SCENARIOS Tables 5.10 and 5.11 present the revenue outputs generated by the two scenarios (see proposed tax structure in Annex III – Table 4) in Antigua and Barbuda, and what such excise tax and total tobacco government revenue contribute to the country’s GDP, compared to a 2017 baseline and projected figures for 2018. ũũ Policy Option 1: Antigua and Barbuda, unlike the other OECS members being assessed, does not have a uniform specific or ad valorem excise tax rate. In the ongoing OECS harmonization effort, to reach the suggested 30% minimum excise tax burden gradually by 2021, Scenario 1 proposes that the country adopt a uniform specific excise tax rate of EC$1.50 per pack in 2019. A uniform specific excise system maximizes the impact of retail prices overall, reducing the gap between price tiers (as well as between brands) and thereby generating higher revenues for government, at least over the short and medium terms. The EC$1.50 per 20-cigarette pack proposed in 2019 would be increased by 100% to EC$3.00 per pack in 2020. The specific excise tax rate reached in 2020 would be increased again by 100% to EC$6.00 per 20-cigarette pack in 2021, reaching a 30.3% tobacco excise tax burden (see Scenario 1 outputs in Table 5.10). ũũ Policy Option 2: Adopting a harmonized uniform specific excise tax (EC$4.00 by 2021), the proposed uniform specific excise tax rate to be adopted in 2019 would be EC$0.80/pack in scenario 2. The specific excise tax of EC$ 0.80 per pack in 2019 is then increased by 138% to EC$1.90 per pack in 2020, and to EC$4.00 per pack in 2021, bringing the average excise tax burden close to 25%, as shown in Table 5.11 for Scenario 2. Once again, it is recommended that the rate of the specific excise tax be adjusted regularly to keep pace with increases in the price level and in average incomes. Under Scenario 1 (Table 5.10), the tobacco excise tax revenue projected for 2019, with the adoption of a uniform excise tax of EC$1.50 per 20-cigarette pack, is US$1.34 million (0.08% of GDP). The total tobacco tax revenue collected (revenue recovery charge (RRC), excise taxes, and VAT) in Antigua and Barbuda would increase from US$1.24 million (0.07% of GDP), projected in 2018, to US$2.7 million in 2019 (0.15% of GDP), an additional tax revenue of US$1.5 million, while the total cigarettes taxed is estimated to fall by 10%. For 2020, the tobacco excise tax revenue projected with the increased EC$3.00 tax per 20-cigarette pack would be about US$2.4 million. The total tobacco tax revenue for 2020 is estimated at US$4.1 million (0.23% of GDP) and consumption would be reduced by close to 9%. The total tobacco tax revenue for 2021 is estimated at US$6.2 million (0.34% of GDP) with an estimated fall in consumption of close to 12%. 53 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States Under Scenario 2, Table 5.11, with the adoption of the proposed harmonized uniform specific excise rate increase to EC$0.80, the estimated tobacco excise tax revenue would be close to US$0.8 million (0.04% of GDP), US$1.7 million with the tax of EC$1.90/per pack in 2020 (0.09% of GDP), and US$3.1 million (0.17% of GDP) in 2021 with the harmonized specific excise tax of EC$4.00 per pack. This would increase total tobacco tax revenue collected (CET, RRC, excise taxes, and VAT) from the US$1.24 million (0.07% of GDP) projected in 2018 to US$2.1 million in 2019 (0.12% of GDP), while the total of cigarettes taxed is estimated to fall by 6.5%. Total tobacco tax revenue for 2020 is projected to reach US$3.1 million (0.18% of GDP) and expected consumption to fall by 7%. For 2021, total tobacco tax revenue is projected to reach US$4.9 million (0.27% of GDP) and expected consumption to fall by 10%. 54 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Table 5.10: Antigua and Barbuda Summary Cigarette Excise Tax GDP Impact - 2018 Forecast, and Proposed Scenario 1 Outputs 2019-2021 EXPECTED CONTRIBUTION TO GDP 0.34% 0.24% INCREASE THE SPECIFIC EXCISE FROM 0.0116 $ 4.28 300.0 0.039 $ 6.21 $7.33 0.017 19.79 30.3 48.6 -12.1 EC$3.00 IN 2020 TO EC$6.00 IN 2021 (SCENARIO 1) EXPECTED CONTRIBUTION TO GDP 0.23% 0.14% INCREASE THE SPECIFIC EXCISE FROM 0.0066 $ 5.20 0.044 $4.06 $2.44 14.04 150.0 0.011 40.2 -9.3 21.4 EC$1.50 IN 2019 TO EC$3.00 IN 2020 (SCENARIO 1) EXPECTED CONTRIBUTION TO GDP 0.08% 0.15% ADOPT SPECIFIC EXCISE TAX RATE AT 0.0036 0.048 0.007 $3.94 $2.69 $1.34 -10.6 75.0 32.8 10.6 14.1 C$1.50 PER PACK 2019 (SCENARIO 1) EXPECTED CONTRIBUTION TO GDP 0.00% 0.07% 2018 (PROJECTED): NO AD VALOREM OR 0.003 0.054 $2.96 $1.24 8.00 20.1 0.6 $- SPECIFIC EXCISE TAX - - - EXPECTED CONTRIBUTION TO GDP 0.00% 0.08% BASELINE (2017): NO AD VALOREM OR 0.003 0.054 $2.81 $1.19 7.60 19.8 5.4 $- SPECIFIC EXCISE TAX - - - GOVERNMENT REVENUE TYPE Average excise tax (EC$ per 1000 pieces) Percentage change in total cigarette sales excise, and VAT - as percentage of price) Average excise tax burden (excise tax as Total tobacco excise tax revenue (billion Average cigarette price (EC$)/per pack Total tobacco government revenue (ID, Total tobacco government revenue (ID, Average cigarette price (US$ per pack) Average tax burden (total tax - import, Total excise tax revenue (US$ million) Total cigarettes taxed (billion pieces) 1 RRC, excise, and VAT, billion EC$) 3 RRC, excise, and VAT, US$ million) percentage of price) taxed (%) EC$) Source: WBG Staff estimates. 1 Source: Revenues Estimates, Antigua and Barbuda Customs and Excise Division; Tobacco import duty and Revenue Recovery Charge (RRC) (2016= EC$0.66 million; 2017 = EC$ 1.37 million). 2 Note: The simulation model result of EC$0.77 million in Import Duty and RRC close for 2016 and EC$ 1.378 for 2016 provided the metrics to calibrate the model comparing these figures with actual revenue reported by the Antigua and Barbuda Customs and Excise Division with a difference of less than 1.0%, which falls within a statistically acceptable range. 3 The total tobacco government revenue for cigarette taxes including import duty, excise, and VAT generated by the simulation model, assumes that the VAT is applied along the cigarette distribution chain from customs + proposed excise, to wholesale and retail points of sale 55 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States 2021 (SCENARIO 2) 2020 (SCENARIO 2) SPECIFIC EXCISE TAX OR SPECIFIC EXCISE TAX GOVERNMENT REVENUE TYPE EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP FROM EC$1.90 BY 111% TO EC$4.00 BY C$0.80 PER PACK 2019 (SCENARIO 2) FROM EC$0.80 IN 2019 TO EC$1.90 IN INCREASE THE SPECIFIC EXCISE 138% ADOPT SPECIFIC EXCISE TAX RATE AT 2018 (PROJECTED): NO AD VALOREM INCREASE THE 2020 SPECIFIC EXCISE BASELINE (2017): NO AD VALOREM OR Source: WBG Staff estimates. Total cigarettes taxed (billion pieces) 0.054 0.054 0.051 0.047 0.042 [1] Average cigarette price (EC$)/per pack 7.60 8.00 9.58 11.88 16.01 Average excise tax burden (excise tax - - 9.8 17.3 25.0 as percentage of price) Average tobacco tax burden (total tax - 19.8 20.1 27.7 35.0 43.5 import, excise, and VAT - as % of price) Average cigarette price (US$ per pack) $2.81 $2.96 $3.55 $4.40 $5.93 Average excise tax (EC$ per 1000 - - 40.0 95.0 200.0 pieces) Total tobacco excise tax revenue (billion - - 0.0020 0.004 0.008 EC$) Total excise tax revenue (US$ million) $- 0.00% $- 0.00% $0.75 0.04% $1.65 0.09% $3.13 0.17% Total tobacco government revenue (ID, 0.003 0.003 0.006 0.008 0.013 RRC, excise, and VAT, billion EC$) Forecast, and Proposed Policy Option 2 (Scenario 2) Outputs 2019-2021 Total tobacco government revenue (ID, $1.19 0.08% $ 1.24 0.07% $2.08 0.12% $3.14 0.18% $4.87 0.27% RRI, excise, and VAT, US$ million) Table 5.11: Antigua and Barbuda Summary Cigarette Excise Tax GDP Impact - 2018 Percentage change in total cigarette 5.4 0.6 -6.5 -7.1 -10.1 sales taxed (%) 56 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries 5.6.5. ST. KITTS AND NEVIS EXCISE TAX-GDP IMPACT ASSESSMENT - 2018 FORECAST, AND PROPOSED SCENARIOS Tables 5.12 and 5.13 present the revenue outputs generated by the two scenarios in Annex III – Table 5) in St. Kitts and Nevis, and the contribution of such excise tax and total government tobacco revenue to the country’s GDP, compared to a 2017 baseline and projected figures for 2018. ũũ Policy Option 1: Currently, the average excise tax burden in St. Kitts and Nevis consists of the 20% ad valorem excise tax, which is applied to the specific import duty (EC$18 per kilo) and the Customs Service Charge (CSC). This is a very low base, and represents less than 1% of the average retail price. In a concerted OECS harmonization effort to reach a suggested 30% minimum excise tax burden gradually by 2021, Scenario 1 proposes that the 20% ad valorem excise tax be maintained, and a uniform specific excise tax29 of EC$1.50 per pack be adopted for 2019. The 2020 specific excise tax rate would then be increased by 100% to EC$3.00 per 20 cigarettes, and again by 100% in 2021 (to EC$6.00 per pack). The resultant tax structure, maintaining the 20% ad valorem tax and adding the uniform specific excise tax, would provide a mixed specific excise system. A mixed specific system is also the official excise system in the EU and is being adopted in the ECOWAS member countries, as shown in Boxes 5.1 and 5.2. ũũ Policy Option 2: Adopting a harmonized uniform specific excise tax (EC$4.00 by 2021), the current ad valorem excise tax would be replaced by a uniform specific excise tax rate, of EC$1.00 per pack in 2019. The specific excise tax rate for 2019 would be increased by 100% in 2020 to EC$2.00 per pack, and again by 100% in 2021 reaching the proposed harmonized specific excise tax of EC$4.00 per pack. Under Scenario 1 (Table 5.12), the tobacco excise tax revenue projected with the mixed system (20% ad valorem excise tax and EC$1.50/pack) is US$1.3 million. The total tobacco tax revenue projected would increase from US$0.14 million (0.01% of GDP), projected for 2018, to US$1.4 million in 2019 (0.13% of GDP – WBG projections), while the expected reduction in total cigarettes taxed is estimated to be 6%. For 2020, the tobacco excise tax revenue projected, with current ad valorem tax and EC$3.00/pack, would be about US$2.33 million. Total tobacco tax revenue for 2020 is estimated at US$2.42 million (0.22% 29 Most high-income countries rely heavily on the specific excise component of the taxes. “A uniform specific excise system maximizes the impact of retail prices overall, reducing the gap between price tiers (as well as brands) and thereby generating higher revenues for government, at least over the short and mid-term” (Economics of Taxation Toolkit, WBG, March 2018). 57 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States of GDP) and consumption would be reduced by about 5%. For 2021, the tobacco excise tax revenue projected with the specific excise of EC$6.00/pack would be about US$5.9 million. The total tobacco tax revenue for 2021 is projected to be equivalent to US$4.2 million (0.37% of GDP), and the estimated retail price increase of a 20-cigarette pack would contribute to decrease the number of cigarettes taxed by 9.4% in 2021. Under the proposed Policy Option for OECS countries harmonization (Scenario 2, Table 5.13), with a uniform specific excise rate of EC$1.00 in 2019, the estimated tobacco excise tax revenue would be close to US$0.8 million (0.08% of GDP); in 2020, with EC$2.00/per pack, it would reach US$1.6 million (0.14% of GDP); and with EC$4.00 per pack tax in 2021, US$2.9 million (0.25% of GDP). Total tobacco tax revenue projected would be US$0.9 (0.08% of GDP) in 2019, US$1.7 million (0.15% of GDP) in 2020, and US$3.0 million (0.26% of GDP) in 2021. The increases would reduce the number of cigarettes taxed by 2.8% in 2019, 3.2% in 2020, and 8.6% in 2021. 58 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Table 5.12: St. Kitts and Nevis Summary Cigarette Excise Tax GDP Impact - 2018 Forecast, and Proposed Scenario 1 Outputs 2019-2021 EXPECTED CONTRIBUTION TO GDP 0.36% 0.37% MAINTAIN 20% AD VALOREM AND 0.036 0.0111 $4.22 307.2 $6.97 $4.13 0.011 49.2 32.7 -9.4 18.8 INCREASE SPECIFIC EXCISE AT EC6.00 PER PACK 2021 (SCENARIO 1) EXPECTED CONTRIBUTION TO GDP 0.22% 0.21% MAINTAIN AD 20% VALOREM AND 0.0063 0.040 0.007 $5.20 $2.42 22.39 $2.33 157.2 39.6 14.0 INCREASE SPECIFIC EXCISE AT EC$3.00 -5.1 PER PACK 2020 (SCENARIO 1) EXPECTED CONTRIBUTION TO GDP 0.13% 0.12% MAINTAIN 20% AD VALOREM AND ADOPT 0.0034 0.004 0.042 $4.28 $1.36 $1.27 14.13 32.0 -6.3 81.7 SPECIFIC EXCISE AT EC$1.50 PER PACK 11.6 2019 (SCENARIO 1) EXPECTED CONTRIBUTION TO GDP 0.01% 0.01% 2018 (PROJECTED): 20% AD VALOREM OF 0.0004 0.0002 0.045 $0.06 $3.33 $0.14 9.00 0.85 19.6 0.0 (CSC+ID) /20 CIGARETTES PACK 3.8 EXPECTED CONTRIBUTION TO GDP 0.00% 0.01% BASELINE (2017): 20% AD VALOREM 0.0003 0.0001 $ 0.05 0.045 $ 3.27 $ 0.12 0.86 8.84 19.7 EXCISE TAX 3.8 GOVERNMENT REVENUE TYPE Total tobacco government revenue (import Total tobacco government revenue (import Average excise tax (EC$ per 1000 pieces) Percentage change in total cigarette sales excise, and VAT - as percentage of price) Average excise tax burden (excise tax as Total tobacco excise tax revenue (billion Average cigarette price (EC$)/per pack Average cigarette price (US$ per pack) Average tax burden (total tax - import, Total excise tax revenue (US$ million) duty, excise, and VAT, US$ million) * Total cigarettes taxed (billion pieces) duty, excise, and VAT, billion EC$) 2 percentage of price) taxed (%) EC$) * 1 Source: WBG Staff estimates. * Source: Revenues Estimates, St. Kitts and Nevis Customs Department: Tobacco Excise Revenue (2016= EC$0.136 million; 2017 = EC$ 0.114 million) 1 The simulation model was adjusted, based on 2017 excise tax revenue which was confirmed with the St. Kitts and Nevis customs department reflecting the tax exemptions (No Taxes, No VAT under the hotel aids act) given to the main importer of duty-free shop cigarettes. Note that 2017 total tax revenue was lower than that of 2016, despite an increase in the total number of cigarettes imported. 2 The simulation model assumes that the VAT is applied along the cigarette distribution chain from customs to wholesale and retail points of sale (except for goods entered under the hotel aids act). 59 // Modeling the Fiscal Impact of Tobacco Tax Policy Reforms in OECS Member States EXCISE TAX PACK 2019 (SCENARIO 2) GOVERNMENT REVENUE TYPE PER PACK BY 2020 (SCENARIO 2) OF (CSC+ID)/20 CIGARETTES PACK INCREASE 100% THE 2019 SPECIFIC BASELINE (2017): 20% AD VALOREM INCREASE 100% THE 2020 SPECIFIC EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXPECTED CONTRIBUTION TO GDP EXCISE FROM EC$2.00/PER PACK TO 2018 (PROJECTED): 20% AD VALOREM EXCISE (EC$1.00/PER PACK) TO EC$2.00 TAX TO SPECIFIC EXCISE AT EC$1.00 PER CONVERT THE 20% AD VALOREM EXCISE EC$4.00 PER PACK BY 2021 (SCENARIO 2) Source: WBG Staff estimates. Total cigarettes taxed (billion pieces) 0.045 0.045 0.0437 0.042 0.039 Average cigarette price (EC$)/per pack 8.84 9.00 10.6 12.3 16.1 Average excise tax burden (excise tax 0.86 0.85 9.7 16.5 24.9 as percentage of price) Average tax burden (total tax - import, excise, and VAT - as percentage of 19.7 19.6 27.6 33.9 41.8 price) Average cigarette price (US$ per pack) $ 3.27 $3.33 $ 3.92 $4.55 $5.96 Average excise tax (EC$ per 1000 3.8 3.8 50.0 100.0 200.0 pieces) Total tobacco excise tax revenue (billion 0.0001 0.0002 0.0022 0.004 0.008 EC$) Total excise tax revenue (US$ million) $0.05 0.00% $0.06 0.01% $0.81 0.08% $1.57 0.14% $2.86 0.25% Total tobacco government revenue (ID, 0.0003 0.0004 0.002 0.004 0.008 SCS, excise, and VAT, billion EC$) Forecast, and Proposed Policy Option 2 (Scenario 2) Outputs 2019-2021 Total tobacco government revenue (ID, $0.12 0.01% $0.14 0.01% $0.89 0.08% $1.65 0.15% $2.96 0.26% CSC, excise, and VAT, US$ million) Table 5.13: St. Kitts and Nevis Summary Cigarette Excise Tax GDP Impact - 2018 Percentage change in total cigarette 37.1 0.0 -2.8 -3.2 -8.6 sales taxed (%) 60 THE DATA ON TOBACCO1 USE IN ORGANIZATION O EASTERN CARIBB STATES (OECS) RE HIGH LEVELS OF TOBACCO USE, B AMONG ADULTS CHILDREN. THE T SYSTEMS OF THE N THE 6 CONCLUSIONS AND THE OF WAY FORWARD BEAN 6.1. Conclusions The scenarios presented in this report are meant to advance tobacco tax harmonization in the OECS. Admittedly, there will still be some way to go to achieve the tobacco tax burden benchmark set by the WHO and others. However, the policy options provide a starting point for the countries to move towards reaching this benchmark. In fact, if the EVEAL suggestions are followed, they will result in significant changes to the current tobacco tax structure for some of the selected countries. For instance, in Scenario 1, countries will move in some cases, from an excise tax share of 0% or close to 0% in 2018 to over 30% and 40% in 2021—a two-tiered harmonization approach based on countries’ excise tax share starting points. For Scenario 2, given the current excise tax positions of some of the countries, it is important that all countries engage in some adjustment to their tax structures in the interest of perceived fairness. Since St. Lucia’s current excise tax rate is EC$3.52, the minimum specific excise tax target needed to be set above this rate to allow for adjustments for this country. In a situation where at least one country has no excise BOTH tax on the product, and two others close to none, setting the 2021 target significantly above EC$3.52 may prove to be quite challenging for the countries with low or no excise tax, since this will require substantial annual increases in the excise tax rates. The target rate was therefore set at EC$4.00 (US$1.48), since forecasts showed that higher rates would likely be burdensome. Scenario 2 further proposes that countries increase their AND excise rates uniformly from the harmonized base of EC$4 in 2021 to EC$7.00 (2.70) per pack of 20 cigarettes in 2025. This somewhat conservative approach in Scenario 2 is not accidental, since a more aggressive stance may prove to be less politically feasible. In fact ultimately, the report recommends the implementation of Scenario 2, although the 2021 results for Scenario 1 may appear to be better than for Scenario 2, based TAX on consumption and revenue impacts. Scenario 2 is the better scenario from a harmonization prospective, as it achieves a truly harmonized excise tax structure by 2021 while reducing consumption and increasing revenues. It thereafter proposes higher excise tax rates on the product, albeit, in the longer term. E 62 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries It is also important to note that while Scenario 1 shows higher revenues and greater consumption reductions, it does not achieve complete excise tax harmonization, which is the major objective of the study. To choose Scenario 1 based on the level of revenues collected and the reduction in consumption would be to shift the objective of the study. Scenario 2 offers the more measured way of achieving harmonization in the short term (2021), while targeting consumption reduction and increased revenues in the medium- to-long term (2022-2025). The fact is that it is Scenario 2 which initiates the harmonization of excise taxes in a more targeted fashion across the sub-region, with all countries implementing a minimum specific excise tax by a specified time. The second Scenario also appears to align more closely with the overall policy objective of more effective tobacco control and prevention over the longer period. Scenario 2 is also superior to Scenario 1 in that, while Scenario 1 will maintain the current, vastly diverse application of excise taxes on tobacco, Scenario 2, by taking us closer to harmonized excise tax structures, will lessen the incentive for cross- country trade in tobacco and thereby reduce tobacco consumption even more. 6.2. The Way Forward Given that the current tax structure of the OECS countries is characterized by five main tobacco-related taxes, it may be desirable to pursue a simplification of all these taxes across the sub-region. In this study, however, the short-to-medium-term strategy will be to achieve harmonization of excise taxes across the region. Harmonization in this sense will require that all countries levy a minimum specific excise tax at the same rate, by a specified time (2021). The wide variations in both the tobacco tax structures and the prices of tobacco, together with the proximity of the countries of the OECS, creates the potential for smuggling but also strengthens the case for harmonization. Because of the very low tobacco prices in some countries, harmonization that also aims at a significant reduction in tobacco consumption will call for higher taxes. It will be important for each country to mount a campaign to educate the public about the intent of the proposed tax increases, emphasizing the deleterious effects of tobacco both on population health and on the economy. The harmonization proposal should then be laid before two regional meetings for adoption—the regional meeting of the OECS Ministers of Health and the meeting of the OECS Ministers of Finance—prior to implementation by the individual countries. The proposal will include a sustained increase in taxes until targeted tax/price ratios are attained. This means that countries will move closer to FCTC compliance by a harmonization process carried out in stages. The region may benefit from considering the experience of the Southern African Customs Union and the European Union as it moves from one stage of harmonization to the other (See Box 6.1). 63 // Conclusions and the Way Forward BOX 6.1: LESSONS LEARNED FROM THE TOBACCO TAX HARMONIZATION IN THE SOUTHERN AFRICAN CUSTOMS UNION (SACU) a. For many years South Africa was regarded as a model of good practice for tobacco control. South Africa was one of the first middle-income countries to use increases in the excise tax on tobacco products as a tobacco control strategy. The public health benefits are very substantial and will be increasingly reaped in years to come. The BLNS1 countries benefited from South Africa’s strategy, even though their influence on this decision was minor. The lesson for the OECS is that, in a closely-knit grouping like SACU, the initiative and influence of one-member country can have benefits for all member countries, if the tobacco control policy of the influencing member is sound. b. Because the excise tax is the same, and retail prices are similar in SACU (Botswana excluded, but see below), there is no incentive for cross-border shopping and bootlegging between the member countries. As in most countries, the tobacco industry is very vocal about the illicit trade in cigarettes, real or imagined. However, if the excise tax is the same across countries, they cannot argue that illicit trade is driven by tax differences between countries. c. While the excise tax is the same across all member countries, there is nothing in the SACU agreement that prevents member states imposing additional taxes or levies. Botswana has done this with success, when they introduced the additional levy in 2014. The lesson is that the excise tax agreement between the members of a regional bloc (like the OECS) should set a floor, or a minimum, but that individual countries should be allowed to levy a higher tax, should they deem this necessary. The fact that four of the SACU members share a de facto common currency simplifies matters, but if this is not the case (as is the case for Botswana) it does not make the harmonisation of the excise taxes unworkable. In the OECS, many countries share a common currency, but others have their own currencies. This should not be an impediment to a common excise tax regime between the various member states. BLNS: Botswana, Lesotho, Namibia, and Swaziland 1 Making use of the experience of the EU, the harmonization of taxes can be approached in stages. For example, there can be agreement on harmonizing the tax structure and base in one stage, whilst agreement on minimum excise duty rates for different categories of tobacco products can be determined at subsequent stages. According to World Bank 2017, an important decision taken by the EU on the road to successful tobacco tax harmonization was ‘agreeing on relatively high minimum (excise tax) rates 64 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries with transitional periods for some Member States.’ The experience of the Southern African Customs Union (SACU) also points to success in implementing a fixed excise tax rate across countries, while allowing individual countries to have an additional levy on tobacco products if they want to increase the tax burden Underpinning these actions, however, will be the accompanying legislation, without which harmonization cannot be accomplished. Although the proposed harmonization may involve a long, difficult process, the case for it remains a very strong one, given the extent of the variation and the low levels of tax rates that now prevail in most OECS countries. With the harmonization bringing higher rates of tobacco taxation to all countries, and by standardizing the tobacco consumption environment, the region as a whole would be moving much closer to full compliance with the FCTC requirements. 65 // Conclusions and the Way Forward REFERENCES Caribbean Centre for Money and Finance. (2016). Caribbean Performance Economic Report. Caribbean Community Secretariat. (2001). Revised Treaty of Chaguaramas Establishing the Caribbean Community Including the Caricom Single Market and Economy. Retrieved April 9, 2018 from: http://www.caricad.net/wp-content/uploads/2016/12/Revised-Treaty- of-Chaguaramas.pdf Eastern Caribbean Central Bank. (2017). Eastern Caribbean Central Bank. 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Geneva: WHO. 67 // References ANNEX 1 TO 3: OECS EXCISE TAX HARMONIZATION: SIMULATION ASSUMPTIONS Annex I: OECS Macro-Economic Indicators; Annex II: OECS Simulation Assumptions: Price and Income Elasticity; Annex III: Tax Scenarios – Current and Proposed Scenarios - Cigarette Excise Tax Structure 68 OECS MEMBERS 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 ACTUAL FORECAST FORECAST FORECAST FORECAST Average Exchange rate EC$/ 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 1US$ (Estimate) Macroeconomic data 1 Antigua and Barbuda GDP at market prices (Current 1,152.5 1,142.0 1,211.4 1,192.9 1,280.1 1,364.9 1,460 1,532 1,657 1,768 1,741 1,811 US$ million) 1 GDP (current EC$ billion)1 3.11 3.08 3.27 3.22 3.46 3.69 3.94 4.14 4.48 4.77 4.70 4.9 Real GDP growth rate** -8.56% -2.22% 3.01% 1.59% 5.34% 3.79% 5.36% 4.42% 5.63% 4.25% 2% 2% Real GDP per capita growth -8.3% -3.2% 2.4% -1.2% 4.0% 3.0% 4.3% 1.7% 1.7% 1.7% 2.94% 2.94% (annual%) 2 St. Kitts and Nevis GDP at market prices (Current 705.0 753.2 734.5 788.2 847.8 878.3 909.9 945.9 1,003.9 1,051.9 1,099.0 1,153.0 US$ million) 1 Annex I - Table 1: OECS Macro-Economic Indicators GDP (current EC$ billion) 1 1.90 2.03 1.98 2.13 2.29 2.37 2.5 2.6 2.7 2.8 3.0 3.11 Real GDP growth rate** -2.2% 2.4% -0.6% 6.2% 6.0% 4.0% 2.2% 1.7% 3.4% 2.7% 2.70% 2.70% 69 // Annex 1 to 3: OECS Excise Tax Harmonization: Simulation Assumptions Real GDP per capita growth -3.3% 1.3% -1.7% 5.1% 4.8% 2.9% 1.2% 6.5% 5.0% 6.9% 4.00% 3.67% (annual%)2 Grenada GDP at market prices (Current 771.02 778.65 799.88 842.62 911.48 997.01 1,056.2 1,118.8 1,170.5 1,223.5 1,269 1,332 US$ million) 1 GDP (current EC$ billion)1 2.08 2.10 2.16 2.28 2.46 2.69 2.85 3.02 3.16 3.30 3.43 3.6 Real GDP growth rate** -0.51% 0.76% -1.16% 2.35% 7.34% 6.44% 3.68% 3.73% 2.82% 2.69% 3% 3% Real GDP per capita growth -0.9% 0.4% -1.5% 1.9% 6.8% 5.8% 3.7% 1.9% 2.3% 1.3% 4.22% 4.46% (annual%)2 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries OECS MEMBERS 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 ACTUAL FORECAST FORECAST FORECAST FORECAST Average Exchange rate EC$/1US$ 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 (Estimate) Macroeconomic data 1 St. Lucia GDP at market prices (Current 1,382.0 1,437.7 1,436.8 1,489.9 1,551.9 1,649.1 1,667.1 1,712.3 1,772.4 1,834.4 1,900 1,955 US$ million)1 GDP (current EC$ billion) 1 3.73 3.88 3.88 4.02 4.19 4.45 4.50 4.62 4.79 4.95 5.13 5.3 Real GDP growth rate** -1.62% 0.63% 0.18% 3.39% -0.22% 1.96% 1.65% 2.69% 2.71% 2.56% 2% 2% Real GDP per capita growth -1.1% 2.3% -1.5% -0.6% -1.6% 1.3% 0.4% 1.8% 2.1% 1.7% 2.32% 2.29% (annual%)2 St. Vincent and the Grenadines GDP at market prices (Current 681.2 676.1 692.9 721.2 727.2 755.2 765.4 789.5 815.3 842.3 930 972 US$ million)1 GDP (current EC$ billion)1 1.84 1.83 1.87 1.95 1.96 2.04 2.07 2.13 2.20 2.27 2.51 2.6 Real GDP growth rate** 0.93% -0.75% 2.49% 4.08% 0.58% 4.30% 1.16% 3.15% 3.27% 3.31% 3% 3% Real GDP per capita growth -3.4% -0.4% 1.4% 1.8% 1.2% 1.3% 1.4% 2.2% 2.7% 2.8% 4.41% 4.46% (annual%) 2 2 1 Mapper Database. WBG staff estimates ** Data Source: 2010-2019, Eastern were sourced from the World Bank’s Source: data for the years 2010-2015 database; data for the years 2016-2019 Caribbean Central Bank; 2020-2021, IMF were provided by the Eastern Caribbean Central Bank (ECCB); and data for the years 70 2020-2021 were sourced from the IMF Data Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Annex II - Table 1: OECS Excise Tax Harmonization: Simulation Assumptions: Price (-0.6/-0.4 range) and Income Elasticity (0.9/0.5 range) for Upper Middle-Income Countries (UMIC To estimate the impact of the change in the retail price on consumption, the crucial parameters are: ũũ Price elasticity of demand: The greater the price elasticity, the greater the decrease in the consumption of cigarettes in response to a given percentage change in the price (price elasticity falls in the inelastic range, but closer to -1 than zero). ũũ Income elasticity of demand: The greater the income elasticity may lead to greater consumption of cigarettes in response to a given percentage change in income (income elasticity tends to be unit elastic or somewhat more elastic). ũũ St. Lucia VAT (12% - 2017) is equivalent to 10.7% of final retail price; ũũ Grenada VAT (15%) is equivalent to 13.04% of final retail price; ũũ St. Vincent and the Grenadines (16% -2017) is equivalent to 13.79% of final retail price; ũũ It is assumed that to protect the profit margins, the importers, and distributors, pass-through the tax increase to the consumer’s price increase. 71 // Annex 1 to 3: OECS Excise Tax Harmonization: Simulation Assumptions PRICE CHANGE Price elasticity: LMC Price elasticity of demand for high-income countries +10% (HIC) is estimated to be -0.4 and between -0.6 and HIC -0.8 in low and middle income countries (LMIC) (IARC, 2014). 4% 8% Assumptions: CONSUMPTION CHANGE Price elasticity for Economy cigarettes Value (must be negative) -0.6 Price elasticity for medium cigarettes Value (must be negative) -0.5 Price elasticity for premium cigarettes Value (must be negative) -0.4 Income elasticity for Economy cigarettes Value (typically positive) 0.9 Income elasticity for medium cigarettes Value (typically positive) 0.7 Income elasticity for premium cigarettes Value (typically positive) 0.5 Note: For the OECS members classified as Upper Middle-income countries (UMIC) by the WBG (Grenada, St. Lucia, St., Vincent and the Grenadines), this assumption adopts the ranges found in a study carried out on price and income elasticities of demand in Jamaica (UMIC) in 2004 (“Economics of tobacco control in Jamaica: will the pursuit of public health place a fiscal burden on the government?”; Article · January 2004; Corne van Walbeek, University of Cape Town): ũũ “likely range for the true value of the price elasticity of demand is between –0.3 and –0.6” ũũ Van Walbeek found statistically significant ranges for income elasticity in Jamaica between 0.51 and 0.89 72 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Annex II - Table 2: OECS Excise Tax Harmonization: Price (-0.5/-0.3 range) and Income Elasticity (0.8/0.4 range) for High Income Countries To estimate the impact of the change in the retail price on consumption, the crucial parameters are: ũũ Price elasticity of demand: The greater the price elasticity, the greater the decrease in the consumption of cigarettes in response to a given percentage change in the price (price elasticity falls in the inelastic range, but closer to -1 than zero). ũũ Income elasticity of demand: The greater the income elasticity may lead to greater consumption of cigarettes in response to a given percentage change in income (income elasticity tends to be unit elastic or somewhat more elastic). ũũ St. Kitts and Nevis VAT (17% - 2017) is equivalent to 14.53% of final retail price; ũũ Antigua and Barbuda VAT (15%) is equivalent to 13.04% of final retail price; ũũ It is assumed that to protect the profit margins, the importers, and distributors, pass-through the tax increase to the consumer’s price 73 // Annex 1 to 3: OECS Excise Tax Harmonization: Simulation Assumptions Price elasticity: PRICE CHANGE Price elasticity of demand for high-income countries LMC +10% (HIC) is estimated to be -0.4 and between -0.6 and HIC -0.8 in low and middle income countries (LMIC) (IARC, 2014). Meta-analyses of the relationship between tobacco prices and use suggest that the overall elasticity of demand for adults lies between -0.3 and -0.7 (CBO 4% 8% 2012, IARC 2011, Gallet and List 2003, Chaloupka CONSUMPTION and Warner 2000) CHANGE Assumptions: Price elasticity for Economy cigarettes Value (must be negative) -0.5 Price elasticity for medium cigarettes Value (must be negative) -0.4 Price elasticity for premium cigarettes Value (must be negative) -0.3 Income elasticity for Economy cigarettes Value (typically positive) 0.8 Income elasticity for medium cigarettes Value (typically positive) 0.6 Income elasticity for premium cigarettes Value (typically positive) 0.4 Note: Price and income elasticity adopted for St. Kitts and Nevis, and Antigua and Barbuda are comparable to high income countries (HIC), since both counties are recognized as high-income economies by the World Bank. * * Source: World Bank list of economies (June 2017) 74 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Annex III - Table 1: OECS Excise Tax Harmonization: Grenada Tax Scenarios – Current and Proposed Scenarios, Cigarette Excise Tax Structure Actual 2016-2017 & Forecast 2018 - 2021 BY 14% TO EC$4.00 PER PACK 2021 (SCENARIO 2) FORECAST SPECIFIC EXCISE TAX RATE TO EC$2.70 PER PACK INCREASE THE SPECIFIC EXCISE TAX TO EC$3.94 CUSTOMS DUTY PER 20 CIGARETTES PACK, AND CUSTOMS DUTY PER 20 CIGARETTES PACK, AND CUSTOMS DUTY PER 20 CIGARETTES PACK, AND INCREASE THE SPECIFIC EXCISE TAX TO EC$2.63 INCREASE THE 2020 SPECIFIC EXCISE TAX RATE INCREASE THE 2019 SPECIFIC EXCISE TAX RATE MAINTAIN THE 105% AD VALOREM EXCISE CIF/ ADOPT EC$1.75 SPECIFIC EXCISE TAX PER 20 C/ ACTUAL ACTUAL MAINTAIN THE 105% AD VALOREM EXCISE CIF/ MAINTAIN THE 105% AD VALOREM EXCISE CIF/ 30% TO EC$3.50 PER PACK 2020 (SCENARIO 2) REPLACE THE AD VALOREM EXCISE TAX TO PER 20 C/PACK -2020, (SCENARIO 1) PER 20 C/PACK -2021, (SCENARIO 1) PACK -2019, (SCENARIO 1) GRENADA TAX DESCRIPTION * 2019 (SCENARIO 2) TAX BASE 2018 2016 2017 TAX (% OR TT$) Import Duty CIF (Cost, (ID)/common 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Insurance and external tariff Freight) (CET) 1 After CIF + ID/ CET +CSC+ Value Added Excise Tax & 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Tax (VAT) 2 wholesale & distribution chain Current Excise Tax Structure Proposed Excise Tax Levels (WBG/HEU-UWI) - - - 1.75 2.63 3.94 2.70 3.50 4.00 Per pack of 20s, Simple Specific excise tax or per 1000 - - - 87.50 131.25 196.88 135.00 175.00 200.00 cigarettes Per pack of 20 Ad valorem cigarettes after 105% 105% 105% 105% 105% 105% excise tax % CIF +(ID/CET) + CSC Declared (CIF) on invoice value Customs reported by service charge 6% 6% 6% 6% 6% 6% 6% 6% 6% importer + CET (CSC) % (No exceptions to CARICOM members) *Source: OESC Tax Systems Structure, Grenada; HEU, Centre for Health Economics, The University of the West Indies 1 Note: Cigarette imports from CARICOM member countries (i.e., Trinidad and Tobago) are exempted of Common External Tariff (CET); Note: The fiscal year in Grenada matches the calendar year 2 The simulation model assumes that the VAT is applied along the cigarette distribution chain from customs/ ex-factory, to, wholesale, and retail points of sale. 75 // Annex 1 to 3: OECS Excise Tax Harmonization: Simulation Assumptions Annex III - Table 2: OECS Excise Tax Harmonization: St. Lucia Tax Scenarios – Current and Proposed Scenarios, Cigarette Excise Tax Structure Actual 2015-2017 and Forecast 2018 – 2021 FORECAST SPECIFIC EXCISE TAX RATE 2020 INCREASED BY SPECIFIC EXCISE TAX RATE 2020 INCREASED BY 25% IN 2020 TO EC$5.28 PER PACK (SCENARIO 1) SPECIFIC EXCISE TAX RATE 2018 INCREASED BY SPECIFIC EXCISE TAX RATE 2018 INCREASED BY SPECIFIC EXCISE TAX RATE 2019 INCREASED BY SPECIFIC EXCISE TAX RATE 2019 INCREASED BY 20% IN 2019 TO EC$4.22 PER PACK (SCENARIO 1) 4% IN 2020 TO EC$3.80 PER PACK (SCENARIO 2) 25% IN 2021 TO EC$6.60 PER PACK (SCENARIO 1) 5% IN 2021 TO EC$4.00 PER PACK (SCENARIO 2) 4% IN 2019 TO EC$3.65 PER PACK (SCENARIO 2) ACTUAL ACTUAL 2016 2017 ST. LUCIA TAX SYSTEM DESCRIPTION* TAX BASE 2018 2016 2017 TAX (% OR EC$) Import Duty CIF (Cost, (Common 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% Insurance and External Tariff Freight) - CET) 1 After CIF + Import Duty (CET) + CSC Value Added + and Tobacco 15.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% Tax (VAT) 2 Excise, wholesale & distribution chain Current Excise Tax Structure Proposed Excise Tax Levels (WBG/HEU-UWI) Per pack of 3.52 3.52 3.52 4.22 5.28 6.60 3.65 3.80 4.00 Simple 20s, Specific excise tax or per 1000 176.00 176.00 176.00 211.20 264.00 330.00 182.50 190.00 200.00 cigarettes Declared Customs (CIF+ID)/ service Ex-factory 6% 6% 6% 6% 6% 6% 6% 6% 6% charge(CSC) value set by % importer/ producer *Source: OECS Tax Systems Structure, St. Lucia; HEU, Centre for Health Economics, The University of the West Indies The fiscal year in St. Lucia runs from March to April. For conciseness, in this report the fiscal year is reported as the latter year. For example, fiscal 2016/17 is reported as 2017 in the text, figures, and tables. 1 Note: Cigarette imports from CARICOM member countries that meet the qualifying conditions, are exempted from Common External Tariff (CET); 2 The simulation model assumes that the VAT is applied along the cigarettes distribution chain from customs/ ex-factory, wholesale, and retail point of sale 76 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Annex III - Table 3: OECS Excise Tax Harmonization: St. Vincent and the Grenadines Tax Scenarios – Current and Proposed Scenarios Cigarette Excise Tax Structure Actual 2015-2017 and Forecast 2018 – 2021 150% TO EC$1.94 PER 20 CIGARETTES PACK IN 2020 150% TO EC$4.84 PER 20 CIGARETTES PACK IN 2021 150% TO EC$0.78 PER 20 CIGARETTES PACK IN 2019 FORECAST 2018 IS INCREASED 142% TO EC$0.75 PER PACK IN SPECIFIC EXCISE TAX OF $1.85 PER PACK IN 2020 IS INCREASED 116% TO EC$4.00 PER PACK IN 2021 2019 IS INCREASED 147% TO EC$1.85 PER PACK IN SPECIFIC EXCISE TAX RATE 2020 INCREASED BY SPECIFIC EXCISE TAX RATE 2018 INCREMENTED SPECIFIC EXCISE TAX RATE 2019 INCREASED BY SPECIFIC EXCISE TAX OF EC$ 0.75 PER PACK IN ACTUAL ACTUAL ACTUAL SPECIFIC EXCISE TAX OF EC$0.31 PER PACK IN ST. VINCENT AND THE GRENADINES TAX SYSTEM 2016 2015 2017 2020 (SCENARIO 2) 2019 (SCENARIO 2) (SCENARIO 2) (SCENARIO 1) (SCENARIO 1) (SCENARIO 1) DESCRIPTION* TAX BASE 2016* 2015* 2017* 2018 TAX (% OR EC$) Import Duty CIF (Cost, (Common 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Insurance and External Tariff Freight) - CET) 1 After CIF + Import Duty (CET) + CSC Value Added and Tobacco 15.0% 15.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% Tax (VAT) 2** Excise, wholesale & distribution chain Current Excise Tax Structure Proposed Excise Tax Levels (WBG/HEU-UWI) Per pack of 0.31 0.31 0.31 0.31 0.78 1.94 4.84 0.75 1.85 4.00 Simple 20s, Specific excise tax or per 100 1.55 1.55 1.55 1.55 3.88 9.69 24.22 3.75 9.25 20.00 cigarettes Customs CIF + Import service charge 4% 4% 5% 5% 5% 5% 5% 5% 5% 5% Duty (CET)+ (CSC) % ** Excise tax *Source: OECS Tax Systems Structure, St. Vincent and the Grenadines; HEU, Centre for Health Economics, The University of the West Indies Note: The fiscal year in St. Vincent and the Grenadines matches the calendar year 1 Note: Cigarette imports from CARICOM member countries that meet the qualifying conditions are exempted from Common External Tariff (CET); ** 16% VAT & 5% CSC effective 2017 2 The simulation model assumes that the VAT is applied along the cigarette distribution chain from customs/ex-factory to, wholesale and retail points of sale. 77 // Annex 1 to 3: OECS Excise Tax Harmonization: Simulation Assumptions Annex III - Table 4: OECS Excise Tax Harmonization: Antigua and Barbuda Tax Scenarios – Current and Proposed Scenarios, Cigarette Excise Tax Structure Actual 2015-2017 and Forecast 2018 – 2021 ADOPT SPECIFIC EXCISE TAX RATE AT C$0.80 PER EC$0.80 IN 2019 TO EC$1.90 IN 2020 (SCENARIO 2) FORECAST ADOPT SPECIFIC EXCISE TAX RATE AT C$1.50 PER EC$1.90 BY 111% TO EC$4.00 BY 2021 (SCENARIO 2) INCREASE THE SPECIFIC EXCISE FROM EC$3.00 INCREASE THE SPECIFIC EXCISE FROM EC$1.50 ACTUAL ACTUAL ACTUAL INCREASE THE 2020 SPECIFIC EXCISE FROM INCREASE THE SPECIFIC EXCISE 138% FROM 2016 2015 2017 IN 2019 TO EC$3.00 IN 2020 (SCENARIO 1) IN 2020 TO EC$6.00 IN 2021 (SCENARIO 1) ANTIGUA AND BARBUDA TAX DESCRIPTION* PACK 2019 (SCENARIO 2) PACK 2019 (SCENARIO 1) TAX BASE 2016* 2018 2015 2017 TAX (% OR EC$) CIF (Cost, Import Duty 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Insurance and (ID) 1 Freight) After CIF + Import Duty + RRC + Value Added 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Excise Tax & Tax (VAT) 2 wholesale & distribution chain Current Excise Tax Structure Proposed Excise Tax Levels (WBG/HEU-UWI) Per pack of - - - 1.50 3.00 6.00 0.80 1.90 4.00 Simple 20s Specific excise tax or per 1000 75.00 150.00 300.00 40.00 95.00 200.00 cigarettes Revenue Import Recovery Invoice (CIF)/ 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% Charge reported value (RRC) by importer Source: -OECS Tobacco Tax Systems; HEU, Centre for Health Economics, The University of the West Indies 1 Note: Cigarette imports from CARICOM member countries that meet the qualifying conditions, are exempted from Common External Tariff (CET); The fiscal year in Antigua and Barbuda coincides with the calendar year. 2 The simulation model assumes that the VAT is applied along the cigarette distribution chain from customs (CIF+ID) + RRC + proposed excise taxes to, wholesale, and retail points of sale. 78 Advancing Action on the Implementation of Tobacco Tax Harmonization in the Organization of Eastern Caribbean States (OECS) Countries Annex III - Table 5: OECS Excise Tax Harmonization: St. Kitts and Nevis Tax Scenarios – Current and Proposed Scenarios, Cigarette Excise Tax Structure Actual 2015-2017 and Forecast 2018 – 2021 INCREASE 100% THE 2020 SPECIFIC EXCISE FROM EC$2.00/PER PACK TO EC$4.00 PER PACK BY 2021 TO SPECIFIC EXCISE AT EC$1.00 PER PACK 2019 ACTUAL ACTUAL ACTUAL CONVERT THE 20% AD VALOREM EXCISE TAX MAINTAIN AD 20% VALOREM AND INCREASE MAINTAIN 20% AD VALOREM AND INCREASE 2017-18 (EC$1.00/PER PACK) TO EC$2.00 PER PACK BY SPECIFIC EXCISE AT EC$3.00 PER PACK 2020 SPECIFIC EXCISE AT EC$6.00 PER PACK 2021 SPECIFIC EXCISE AT EC$1.50 PER PACK 2019 INCREASE 100% THE 2019 SPECIFIC EXCISE 2016 2015 MAINTAIN 20% AD VALOREM AND ADOPT ST. KITTS AND NEVIS TAX DESCRIPTION* 2020 (SCENARIO 2) (SCENARIO 2) (SCENARIO 2) (SCENARIO 1) (SCENARIO 1) (SCENARIO 1) 2017/ 2018 TAX BASE 2016* 2015* TAX (KG., % OR EC$) Import Duty (ID)/ EC$18.00 EC$18.00 EC$18.00 EC$18.00 EC$18.00 EC$18.00 EC$18.00 EC$18.00 EC$18.00 EC$ per Common /Kg. ** /Kg. /Kg. /Kg. /Kg. /Kg. /Kg. /Kg. /Kg. Kilogram External Tariff (CET) 1 After Import Duty (CET) + Excise Tax Value + Customs Added Tax 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% Service (VAT) 2 Charge (CSC) & wholesale & distribution chain Current Excise Tax Structure Proposed Excise Tax Levels (WBG/HEU-UWI) Per pack of 1.50 3.00 6.00 1.00 2.00 4.00 Simple 20s, Specific excise tax or per 1000 - - - 75.00 150.00 300.00 100.00 200.00 350.00 cigarettes Ad valorem Import Duty 20% 20% 20% 20% 20% 0% 0% 0% 0% excise (CET) + CSC tax% 3 Customs Import Duty service 6% 6% 6% 6% 6% 6% 6% 6% 6% tax (CET) charge% *Source: OECS Tobacco Tax Systems; HEU, Centre for Health Economics, The University of the West Indies ** It is assumed that the base for the CET per Kg is equivalent to 1,000 sticks. 1 Note: Cigarette imports from CARICOM member countries that meet the qualifying conditions, are exempted from Common External Tariff (CET). The fiscal year in St. Kitts and Nevis coincides with the calendar year. 2 The simulation model assumes that the VAT is applied along the cigarette distribution chain from customs to wholesale and retail point of sale (except for goods entered under the hotel aids act). 3 An ad valorem excise tax has been in effect since prior to 2014. 79 // Annex 1 to 3: OECS Excise Tax Harmonization: Simulation Assumptions 80