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HIGH LEVEL EVENT ON TOBACCO CONTROL AND TAXATION

HIGH LEVEL EVENT ON TOBACCO CONTROL AND TAXATION. EXPERIENCE OF THE WEST AFRICAN ECONOMIC AND MONETARY UNION (WAEMU) IN TOBACCO TAX HARMONIZATION BY ASSANE DIOUF Washington DC, April 18-19 2017. Members States of the WAEMU – 8 countries. OVERVIEW. I- Preliminary considerations

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HIGH LEVEL EVENT ON TOBACCO CONTROL AND TAXATION

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  1. HIGH LEVEL EVENT ON TOBACCO CONTROL AND TAXATION EXPERIENCE OF THE WEST AFRICAN ECONOMIC AND MONETARY UNION (WAEMU) IN TOBACCO TAX HARMONIZATION BY ASSANE DIOUF Washington DC, April 18-19 2017

  2. Members States of the WAEMU – 8 countries

  3. OVERVIEW I- Preliminary considerations II- Tobacco taxation system within WAEMU II.1. Legal framework for the taxation of tobacco II.2. Advantages and disadvantages of the WAEMU Directive on the taxation of tobacco III- WHO-WAEMU Collaboration on taxation of tobacco III.1. Objectives of collaboration III.2. Actions already taken IV- Future considerations

  4. I-PRELIMINARY CONSIDERATIONS Smoking prevalence remains relatively low in WAEMU countries and remains comparable with prevalence rates in countries with medium or low income. There are approximately 5.244 million adult smokers aged 15 and over and 811,000 young smokers 12 to 14 years in this region. Smoking is responsible for 24,000 deaths per year. The mortality rate for the WAEMU region is far ahead of the average of the African continent with very high rates in Côte d'Ivoire, Niger and Burkina Faso.

  5. I-PRELIMINARY CONSIDERATIONS WAEMU is the sub-region in Africa where cigarettes are the most affordable in price: But in Africa on average, prices and taxes are low compared to global averages: • Average price is US$ 1.74, below the global average of US$ 2.41 per pack. • The share of excise tax in the retail price varies between 2% and 12% for the eight Member States,well below the African average of 39.88% and far below the 70% recommended by WHO.

  6. CIGARETTE PRICE AND EXCISE TAX SHARE IN RETAIL PRICE IN AFRICAN COUNTRIES, 2014

  7. I-PRELIMINARY CONSIDERATIONS • All WAEMU countries are Parties to the WHO FCTC. • Countries are not at the same level by providing in-house adoption of a tobacco comply with the FCTC law. • Incomplete or very weak laws in force in the country. • Industry Presence: all multinationals: Imperial Tobacco, British American Tobacco and Philip Morris

  8. I-PRELIMINARY CONSIDERATIONS Challenges to tobacco control in the WAEMU region • The interference of the tobacco industry • The Lack of awareness of decision-makers • The weakness of the tax system and tax administration in the countries

  9. II.1. LEGAL FRAMEWORK FOR THE TAXATION OF TOBACCO Tobacco taxation of is regulated by: • Decision No. 01/98 / CM / UEMOA of 3 July 1998 adopting the harmonization program of internal indirect taxation within the WAEMU • Directives No. 03/98 / CM / UEMOA of 22 December 1998 and 03/2009 / CM / UEMOA of 27 March 2009

  10. I.1. LEGAL FRAMEWORK FOR THE TAXATION OF TOBACCO Decision n°01/98 of 03 July 1998 • definition of a common list of categories of products subject to excise duties • setting a range of rates to be applied by product • convergence of the tax base products • standardization of rates for products • tax base products: base "ad valorem"

  11. I.1. LEGAL FRAMEWORK FOR THE TAXATION OF TOBACCO Directives 03/98 and 03/2009 • objective: to harmonize excise duties in the WAEMU • requiring states to impose excise taxes on tobacco and beverages • the taxable amount (ad valorem) is identical per product, whether local or imported • requiring states to apply a tax rate per product • on tobacco products, the excise should be between 15% and 45% of the producer value

  12. II.2. ADVANTAGES AND DISADVANTAGES OF THE WAEMU DIRECTIVE ON THE TAXATION OF TOBACCO Advantages: • Harmonization of the tax system in the Union objective of the common market • A single tax structure for all countries (in this case, ad valorem based on product value): • simplicity in definition • ease of liquidation • budgetary cost related to the increase in sales prices (inflation)

  13. II.2. ADVANTAGES AND DISADVANTAGES OF THE WAEMU DIRECTIVE ON THE TAXATION OF TOBACCO Disadvantages: With regards to the tax structure being ad valorem on the product value (producer price): There is complexity and lack of tax efficiency in different aspects: • The current tax structure had led to larger price differentials between products • The undervaluation of goods by the importer/producer • The difficulties of determining the taxable base

  14. II.2. ADVANTAGES AND DISADVANTAGES OF THE WAEMU DIRECTIVE ON THE TAXATION OF TOBACCO Disadvantages: • Some countries imposing differential tax rates (tiers) • Imposing a cap for the tax rate by the WAEMU Directive • Inadequate means of control by national governments • Market control failure by the tax authorities (lack of real knowledge and monitoring of what is happening in the market)

  15. APPLIED TAX RATES (15%-45%) Summary of rates applied on tobacco products (cigarettes) in the WAEMU • 4 of the 8 countries have now reached the maximum rates and cannot improve their taxes further. • Their prices and taxes remain extremely low compared to other countries because of the limitations of the Directive.

  16. III- WHO-WAEMU COLLABORATION ON TOBACCO TAXATION III.1. Objectives WAEMU countries capacity building program on tobacco taxation • increase the efficiency and effectiveness of current tax systems • improve the technical capacity of tax and customs • administrations to ensure compliance with legal provisions • allow governments to achieve their health goals through appropriate fiscal policies.

  17. III- WHO-WAEMU COLLABORATION ON TOBACCO TAXATION III.2. Workdoneso far • Joint WHO-WAEMU workshop on the taxation of tobacco, from 1 to 3 October 2013 in Togo, • Establishment of Technical Working Group on tobacco taxation the UEMOA, • First meeting of the Technical Working Group, from 23 to 25 July 2014 in Burkina Faso, • based on feedback and data reported by WAEMU member states: development of a joint WHO- WAEMU report on tobacco taxation in West- Africa.

  18. III- WHO-WAEMU COLLABORATION ON TOBACCO TAXATION • This report is the result of analyzes carried out by the Technical Working Group, with technical support from WHO economists. • It focuses on systems and tax administration methods and prospects for fiscal policy. • The report is intended to draw the attention of policy makers the urgency of Member States a revision of Directive UEMOA on tobacco taxation. • It also draws a suggested roadmap for revision of the current directive and the harmonized tobacco tax system in place

  19. III- WHO-WAEMU COLLABORATION ON TOBACCO TAXATION Roadmap for an efficient and effective tobacco taxation policy among Member States for the period 2015-2020. The roadmap is developed around three aspects: • Public health: prevention of deaths and diseases related to tobacco consumption through reducing smoking; • Income for Government: Collecting a steady stream of income; • Tax harmonization: The priority for WAEMU convergence of fiscal policies in countries to reduce illegal trade.

  20. III- WHO-WAEMU COLLABORATION ON TOBACCO TAXATION Major recommendations with legal implications Planned revision of the WAEMU Directive aims to improve the current tobacco tax system and remove its weak points: • Remove the maximum tax rate (ceiling) • Introduce a uniform specific excise duty and move slowly away from the ad valorem tax • Establish a minimum specific excise duty that Member States apply 2020

  21. IV- FUTURE CONSIDERATIONS Once the Directive is revised and approved: • Ensure uniform application of the Directive by all states: avoid economic distortions • Continued collaboration with WHO: capitalization of the work of technical working group • Harmonization of WAEMUand ECOWAS* on tobacco taxation guidelines * The EconomicCommunity of West African States (ECOWAS) is a regional group of 15 countries alsotrying to harmonize tobacco taxation. The 8 WAEMU countries are all within the ECOWAS.

  22. IV- FUTURE CONSIDERATIONS Main recommendations from the operational standpoint • Establishment of effective systems for collecting and analyzing data to better control and understand the tobacco market, • Promote the exchange of information between tax and customs administrations, • Setting up a product traceability system through the introduction of tax stamps or electronic tracking of goods in transit in order to reduce the risk of illicit trade.

  23. THNAK YOU FOR YOUR KIND ATTENTION www.uemoa.int www.izf.net

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