The effect of legal retail price on legal cigarette demand and illicit trade in Southeast Asia
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Department of Economics and Corporate Administration, Tunku Abdul Rahman University College, Kuala Lumpur, Malaysia
Universiti Putra Malaysia, Selangor Darul Ehsan, Malaysia
Publication date: 2021-09-02
Corresponding author
Wency Bui Kher Thinng   

Department of Economics and Corporate Administration, Faculty of Accountancy, Finance and Business, Tunku Abdul Rahman University College, Kuala Lumpur Main Campus, Kuala Lumpur, Malaysia
Tob. Induc. Dis. 2021;19(Suppl 1):A62
About one-tenth of the world’s smokers originates from Southeast Asia. Unsurprisingly, annual smoking-attributable deaths (SADs) are estimated at 500,000 and worse in the years to come. Recognising the threat of smoking poses to global public health, WHO FCTC introduced Article 6, a tax measure to effectively reduce cigarette demands. Nevertheless, Southeast Asian countries still have lower legal cigarettes’ retail prices compared to other high-income countries due to the imposition of lower tax rate which does not correspond with inflation and income growth. Despite the lower taxes imposed among Southeast Asian countries, tobacco industries remain adamant that taxation drives illicit cigarette trade and uses this as a tool to mislead governments in making taxation decisions favourable to them.

This study investigated the effects of legal cigarette retail price on legal cigarette demand and illicit cigarette trade among seven Southeast Asian countries

A panel data analysis of seven Southeast Asian countries for ten years from 2008 to 2018 using random-effects-model estimators. Due to data availability constraints, this study only included Cambodia, Indonesia, Malaysia, Philippines, Thailand, Vietnam, and Lao PDR, where these countries have cigarette tax rates that are below WHO recommendation level.

Legal retail price is statistically significant in reducing legal demand among these countries. Hence, the inelastic demand (-0.3625) proves that governments should continuously increase the current tobacco taxes in order to reduce the legal demand while raising a more substantial and consistent revenue stream. Also, the results do not reflect the claims asserted by tobacco industries as increases in retail price is insignificant in driving illicit trade.

Therefore, the respective authorities of the countries should seriously consider tax increments in order to address the threat smoking poses to people. This effort would potentially reduce the high cigarette demand, produce substantial tax revenues, and SADs in Southeast Asia.

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