BACKGROUND: Despite recent progress in tobacco taxation in Mexico, including the implementation of an automatic inflation-based adjustment mechanism in 2020, the country lags behind in the most cost-effective measure of the World Health Organization’s (WHO) MPOWER strategy to reduce smoking (PAHO 2023). Tobacco taxes currently account for 55.4% of cigarette retail prices, well below global best practices (WHO 2021). Cigarettes are also more affordable than in other Latin American countries like Ecuador (WHO 2023). At the same time, smoking prevalence has remained stagnant between 2009 and 2023 (INSP 2023), deviating from the 2025 goal (WHO 2013).
METHODS: Building on earlier work (Waters et al. 2010; Saenz-de-Miera et al. 2022), a simulation model was programmed in R to estimate the effects of tobacco tax increases on consumption and revenue. Inputs included tobacco taxes, value added tax, price elasticity, retailer margins, retail prices, tax pass-through, and inflation. The main scenario considers a one-time increase in the specific tobacco tax from 0.6166 to 3 pesos per cigarette, maintaining the ad valorem tax at 160% of the price to the retailer. An alternative scenario eliminates the ad valorem tax to reduce incentives for brand switching, increasing the specific tax to 4.4 pesos.
RESULTS: Raising the specific tax to 3 pesos would increase retail prices by 81.7% on average, raise the tax burden to 68.5%, reduce consumption by 44.2%, and increase revenue by 25.4%. Replacing the ad valorem tax with a specific tax of 4.4 pesos would yield similar results in consumption and revenue, but larger price increases for ultra-low-priced brands (196.6% vs. 147.5%) and comparable increases for premium brands (67.0% vs. 73.1%), reducing price differentials.
CONCLUSIONS: Higher tobacco taxes in Mexico could significantly reduce tobacco use and contribute to decreasing the burden of non-communicable diseases. A fully specific tax structure may help minimize price disparities across brands.