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Indonesia: court upholds tobacco tax to fund health

4 Oct, 14 | by Marita Hefler, News Editor

Abdillah Ahsan
Faculty of Economics, University of Indonesia

Good news on tobacco control from Indonesia is rare. Recently, however there was a victory in the area of tobacco tax.

On 1 January 2014, Law No. 28 of 2009 on regional taxes was introduced, which allows local provinces in Indonesia to charge a local tax to cigarettes. The tariff is 10% of cigarette excise.

This tax collectively amounts to about USD 796 Million, a significant sum. Following successful international examples for funding tobacco control, a minimum of 50% of the funds raised from the tax are to be used for health promotion, in particular through public anti-smoking campaigns and enforcing smoke free public spaces. This means local governments have the authority to decide on strengthening tobacco control measures for their provinces and cities.

Unfortunately, five smokers challenged this cigarette tax policy in the Constitutional Court, calling for its abolition. Their argument was that the policy harms the constitutional rights of cigarette smokers as consumers by requiring them to pay both excise tax and local cigarette tax. They argued this amounts to double taxation, which is prohibited by the tax law and is unjust.

However public health won, and the suit was rejected by the Constitutional Court in May 19, 2014. In the judgment, the Court stated that in accordance with Law No. 11/1995 on Excise Tax, the subject of excise tax is manufacturers, distributors, and importers, while its object includes cigarettes, cigars, tobacco leaf and tobacco strips. In the provisions of Articles 26 and 27 of the Local Tax Law on the other hand, the object of local cigarette taxes is consumption of cigarettes and the subject of this tax is cigarette consumers. “Thus, there is a difference between the object and the subject of excise tax in comparison to the object and subject of local cigarette tax,” said one of the Constitutional Judges.

The Court ruled that the cigarette excise tax paid together with local cigarette tax is the “politics of taxation” to increase state revenues as well as provide compensation on the negative health impacts of smoking. According to the judge, “Simultaneous excise tax and local cigarette tax have positive impact on reducing cigarette consumption and improve society’s health.”

Several benefits will arise from the Court’s rejection of the suit and implementation of the tax. The first is that the local cigarette tax will increase cigarette prices, thereby making cigarettes less affordable, and in turn likely direct reducing smoking uptake among children. The second benefit is local governments will receive increased funds as revenue to go towards local development and increased living standards. A third benefit is the increased funding available to be used exclusively for health promotion and law enforcement. This includes anti-tobacco campaigns and strengthened enforcement of tobacco control regulations such as non smoking areas.

Together, these measures will change the scenario of tobacco control at the local level and enhance local government efforts to better protect children and the poor from the harms of tobacco. It represents a welcome step forward in a country that has been dubbed a paradise for tobacco companies due to lax regulation.

Tobacco Control policy on publishing research to inform regulation

19 May, 14 | by Becky Freeman, Web Editor

An important message from the Editor, Ruth Malone on the Tobacco Control policy regarding publishing papers based on data submitted to regulatory agencies:

The rapid growth of funding for research to inform tobacco regulation in the United States and elsewhere has raised issues about how the journal handles materials that may have been submitted to a government agency before being published in the journal. Tobacco Control will consider for publication papers that have been or that are based on data that has been submitted to regulatory agencies such as the US Food and Drug Administration’s Center for Tobacco Products as part of the public docket or in other forms. Such submission to government agencies, as with any related publications, should, however, be fully disclosed by the authors in the cover letter accompanying the manuscript when it is submitted for consideration. A planned submission of a manuscript to Tobacco Control should not cause delay in submission of important findings to regulatory agencies.

Polluter pays – increasing funding for global tobacco control

14 Sep, 10 | by Becky Freeman, Web Editor

In the August 2010 issue of Tobacco Control, Cynthia Callard wrote an enlightening article on just how uneven the playing field is in tobacco control. She compared the 2008 total revenues of the five major tobacco companies that control 90% of the global market as compared to the total amount spent on global tobacco control. The results show just how much the deck is stacked against effective tobacco control, especially in low and middle income countries. The revenues of these five companies exceeded $300 billion ($160 billion of that is provided to governments as tax) and the corporate earnings of the four publicly traded companies were over $25 billion, of which $14 billion was retained after corporate income taxes were paid. In comparison, funding for global tobacco control was a paltry $240 million. That would be less than 2% of the retained earnings of the four public companies alone.
Considering the profitability of the devastating global tobacco death toll – to say this seems unjust is a gross understatement. What is even more nauseating, is that these profits are coming from some of the poorest people in the poorest nations in the world and ending up in the pockets of wealthy stockholders in the richest countries.

In her article, Callard proposes innovative solutions to divert some of this money to tobacco control

  • :use of transaction taxes on the flow of profits from countries where multinational tobacco companies sell cigarettes to countries where theydistribute the profits or other fiscal instruments
  • health promotion surtax on tobacco manufacturers’ earnings or ringfenced taxes on consumption of tobacco products
  • develop guidelines under the auspices of the FCTC to mandate the use of profit taxes to raise funds for national and international tobacco control efforts

What do you think? How can we increase funding for global tobacco control? Should we push for a “polluter pays” system? What other innovative models could be adopted?

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