Tobacco taxation: A lifesaver and a proven source of finance for development

Written by: Ms Catherine Phuong, Deputy Resident Representative and Officer in Charge of UNDP in Lao PDR, and Dr Ying-Ru Lo, WHO Representative to Lao PDR.

May 30, 2023

As published in the Vientiane Times on 30 May, 2023


Tobacco use kills more than 6700 people every year in Lao People’s Democratic Republic, more than 17 people a day. That’s almost 7000 mothers, fathers, children and grandparents lost due to heart and lung disease, cancer, strokes and tobacco’s many other negative health impacts – like an increased risk of developing tuberculosis – due to smoking or second-hand smoke.


This has many implications for socioeconomic development. Smoking means high health treatment costs, while smoking-related illness and premature death cause productivity losses for the economy. By our estimate, in 2017, tobacco use cost the Lao economy 3.6 trillion Lao Kip, equivalent to 2.3% of its GDP. 


But there is a way to reduce harm while generating much-needed revenue for the health services required to undo tobacco’s damage – and expand health services for many more people.

Lao PDR has the lowest tobacco tax rate, and the second lowest tobacco prices, in ASEAN. Taxing tobacco products is a proven tool to mitigate these lethal products’ impacts effectively and unlock substantial income for the government. 


Neighbouring Thailand and the Philippines offer good examples. In Thailand, a 2% surcharge of excise taxes on tobacco and alcohol finances health prevention activities through the autonomous government body, the Thai Health Promotion Foundation, ‘ThaiHealth’. On average, ThaiHealth receives annually US$ 120 million from the surcharge. 


Similarly, between 2012 and 2020, bold tobacco and alcohol tax reforms in the Philippines – including a tax of 1,000% for low-priced cigarette brands – saw tax revenue from tobacco products grow from US$ 0.99 billion in 2012 to US$ 6.6 billion in 2020, equivalent to 11.3% of the total government revenue in 2020. This additional income has been re-invested in the national health insurance scheme, tripling the number of poor and near-poor households protected by health insurance in just three years. 


The benefits go beyond that. Tobacco taxation and higher prices stop people smoking. In the Philippines, higher tobacco prices from increased tax led to a 34.4% decline in smoking. In Thailand, the percentage of people using tobacco decreased from 22.5% in 2001 (when Thailand introduced legislative measures for ThaiHealth) to 18.2% in 2014. Lower smoking rates mean reduced productivity losses and less sick leave. It means fewer patients needing costly care, and most importantly, more lives saved. 


Tobacco taxation has pro-poor benefits. Contrary to common belief, when tax rates and prices go up, a larger share of poorer households tend to smoke less or give up smoking altogether. The Philippines is witnessing these pro-poor benefits. 


At present, Lao PDR has the lowest tobacco tax rate in the region.[1] The total tax rate on cigarettes is 18.8% of the retail price, while WHO recommends a tax rate of at least 75%. There is significant room for Lao PDR to increase its tax rates to 75% of the retail price, generating much-needed revenue for the things that really matter. 


One reason Lao PDR’s tobacco tax rates remain low is because of benefits and tax exemptions granted to the tobacco industry. This limits the tax rates and pricing dramatically, resulting in more people smoking. We want to be clear: no tobacco company should be granted any tax exemptions, incentives, privileges, or benefits.  

This situation not only harms health, it also causes direct tax revenue losses. Because of the excise tax exemption, it is estimated that Lao PDR has lost more than US$ 140 million between 2002-2019.[2] Our estimates show that these funds could have helped build 30 hospitals or funded urgently needed essential healthcare services.


At a time when the national budget and health spending are under significant pressure due to the impacts of the ongoing pandemic and the global food-fuel-fertilizer-finance crisis, tobacco taxation can go a long way to ensuring access to quality and affordable healthcare. 


Enforcing existing tobacco tax measures in line with Lao PDR’s tax laws and eventually increasing taxes can reduce the burden on the health system and cost to society, and we encourage the government to take the necessary steps to increase tobacco tax.


Thailand, the Philippines and many other countries showcase the many benefits of tobacco taxation. Lao PDR could generate similar win-wins – safeguarding the health of the population, particularly that of low-income groups and protecting the economy by boosting government revenue and reducing the many economic impacts of tobacco use – by changing the current approach. 


In 2021, Lao PDR became a global leader in protecting health, becoming one of just over 30 countries to ban the sale of e-cigarettes and related products, putting health at the top of the priority list. A much-needed tax increase would be another significant step, and create a lasting legacy of protecting health, saving lives and investing in long-term development. 

To learn more about the case for changing the way Lao PDR taxes tobacco products, please visit the report here


[1] Investment case

[2] SEATCA estimates – Investment case