BACKGROUND: Robust evidence supports the cost-effectiveness of increasing tobacco taxes as a control measure. However, some decision-makers express concerns that higher taxes could incentivize illicit trade, potentially diminishing the positive outcomes of such policies. This study evaluates the role of the illicit tobacco trade in the effects of increased tobacco taxes on economic and health impacts in eight Latin American countries.
METHODS: The effect of a 50% increase in cigarette prices through taxes on disease burden, healthy years of life gained, and economic benefits in terms of direct costs, productivity, and informal care avoided, and change in tax revenue, was estimated. The model analyzes an scenario where a portion of tobacco consumption shifts from the licit to the illicit market, assessing how this transition impacts the projected health and economic benefits, and from a Markov probability microsimulation, the health and economic outcomes are obtained.
RESULTS: Even in the presence of illicit trade tobacco tax increases could avoid over 200000 deaths and more than seven million years of life lost from 2020 to 2030 in the eight countries analysed. Indeed in this scenario, which allows for substitution effects in consumption between the licit and illicit markets, the tax collection remains unaffected, and 69% of the health and economic benefits derived from taxes are retained. Economic benefits were US$12954, US$6433, US$10803 from savings in direct medical costs, productivity costs, and informal care, respectively. These represent between 0.35% - 1.04% of the countries' gross domestic product.
CONCLUSIONS: Despite potential concerns regarding illicit trade, our findings reveal that the net impact of increased tobacco taxes is positive and substantial in reducing the health and economic burden associated with smoking. Countries must redouble their efforts to build institutional and security frameworks to make tobacco control policies even more effective.