How to Design and Enforce Tobacco Excises?

IMF How To Notes, November 4, 2016

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Taxing tobacco can help raise much needed revenue and save lives, but it needs to be done well.
This “How-to” note provides guidance on the basics of tobacco taxation.
The note frames key policy questions: How high should tobacco taxes be? Should we use ad valorem or specific taxes? What are the key elements of an efficient tax administration that will secure the tax base and prevent illegal trade?
The note is presented as a sound first step towards solid policy decisions.

Design of tobacco taxes:
- Trade-offs between ad valorem and specific taxes.
- Considerations on how high tobacco taxes should be set.
Enforcement and tax administration:
- Key elements of an efficient tax administration to secure the tax base.
- Measures to prevent illegal trade and excise fraud, including the role of excise stamps and excise authorities.
Public health and revenue dimensions:
- Dual objectives of raising revenue and reducing consumption to save lives.
- Interaction between price, product, and consumption outcomes.

Address the appropriate tax structure choice (ad valorem versus specific) based on policy objectives.
Set tobacco tax levels consistent with revenue and public health goals.
Strengthen tax administration to secure the tax base:
- Implement measures to prevent excise fraud and illegal trade.
- Enhance excise legislation, regulation, and enforcement capacity.
Use excise stamps and other control mechanisms as part of anti-smuggling strategies.

Fiscal Policy: How to Design and Enforce Tobacco Excises? How-to Note No. 3; November 2016
- Fiscal Policy: How to Design and Enforce Tobacco Excises? How-to Note No. 3; November 2016 (Markdown version)
- Fiscal Policy: How to Design and Enforce Tobacco Excises? How-to Note No. 3; November 2016 (PDF)