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Measuring the effects of the new ECOWAS and WAEMU tobacco excise tax directives
  1. Jean Tesche1,
  2. Corne Van Walbeek2
  1. 1 Research Unit on the Economics of Excisable Products, School of Economics, University of Cape Town, Rondebosch, South Africa
  2. 2 School of Economics, University of Cape Town, Rondebosch, South Africa
  1. Correspondence to Dr Jean Tesche, Research Unit on the Economics of Excisable Products, School of Economics, University of Cape Town, Rondebosch 7700, South Africa; jtesche{at}aol.com

Abstract

Background In December 2017, the 15-member ECOWAS (Economic Community of West African States) and the 8-member WAEMU (West African Economic and Monetary Union, a subset of ECOWAS) passed new Tobacco Tax Directives. Both Directives increased the minimum ad valorem excise tax rate to 50%. In addition the ECOWAS Directive introduced a minimum specific tax (US$ 0.02/stick), but the WAEMU Directive did not. This paper examines the likely effects of these new Directives on cigarette prices, sales volumes and revenues.

Method Tax simulation models using comparable data were constructed for each of the 15 countries to estimate the effects of the ECOWAS and WAEMU Directives.

Results If the 15 ECOWAS members implement the ECOWAS Directive it would substantially increase the retail price of cigarettes (unweighted average 51%, range: 12% to 108%), decrease sales volumes (22%, range: −8% to −39%) and increase tax revenue (373%, range: 10% to 1243%). The impact of the WAEMU Directive on WAEMU countries’ cigarette prices (unweighted average +2%), sales volumes (−1%) and revenue (+17%) is likely to be minimal.

Conclusions The 2017 ECOWAS Directive, which adds a specific excise tax per pack, along with an increase in the ad valorem tax, substantially improves its members’ cigarette tax structure. The specific tax overcomes the weakness of the ad valorem excise tax, since it does not depend on import or ex-factory values, which comprise only a small part of the retail price in ECOWAS countries. We recommend that WAEMU countries adopt the ECOWAS Directive, rather than the WAEMU Directive.

  • taxation
  • economics
  • low/middle income country
  • public policy

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