Impact of taxation policy on tobacco consumption in Saudi Arabia

Abstract

BACKGROUND: Taxes on tobacco products that increase the price and target demand-reduction have been shown to be an efficient means of reducing tobacco consumption. A new policy introduced in 2017 has increased the price of a 20-cigarette pack of the most popular brand to 27.50 SAR (7.33 USD) with the tax portion being 68.09%, which is within the yardstick recommended by the World Bank. OBJECTIVE: Assess impact of taxes on cigarette consumption. DESIGN: Retrospective econometric analysis. MAIN OUTCOMES MEASURES: The annual importation of cigarettes containing tobacco (commodity code 24022000) in metric tons (as a proxy measure of consumption). METHODS: An econometric analysis of cigarette prices and consumption was performed using the methods of the World Bank Economics of Tobacco Toolkit. The impact was assessed statistically through price elasticity of cigarette demand. The study used yearly data for the period 2013-2019 to compare the price elasticity of demand according to the change in price. Cigarette consumption was equated to cigarette imports (dependent variable), and correlation with the cigarette price, income, education, and unemployment was assessed as independent variables of interest. RESULTS: Annual importation of cigarettes declined by 27.41% for the period 2013-2019 after the imposition of ad valorem and value-added taxes in 2017 and 2018, respectively. The price of a pack of cigarettes increased by 115.1% from 2016 to 2018. The per capita consumption was inversely correlated with price * P =.0003285, r=-0.969). The inverse correlation between income and per capita consumption was also statistically significant ( P =.025, r=-0.816). Education did not correlate with per capita consumption (P=.740, r=-0.155), but unemployment was inversely correlated ( P =.008, r=-0.884). From 2016 to 2018, the price elasticity of demand became negative with respect to income as recommended by the World Health Organization. The price elasticity of demand reached -0.07, -0.8, -0.93 in 2016, 2017, 2018, respectively. CONCLUSION: The modification of tax policy in 2017 has resulted in a decrease in both cigarette affordability and consumption. An additional 42.67% increase in the price, or pack price of 35.81 SAR (9.54 USD) might offset the increase in individual income noted in 2019 and maintain the decreased affordability. LIMITATIONS: The lack of more granular data on cigarette sales and more reliable data on prevalence. CONFLICT OF INTEREST: None.