Taxation of tobacco products
In the DRC, taxes on tobacco products have risen from 40% to 60% since 2018, but remain below WHO recommendations.
Tobacco taxation is a tool that enables the government to increase health funding and reduce tobacco consumption
Raising taxes could generate additional revenues of around 101 billion USD for governments, which could be allocated to universal health coverage.
Tobacco use kills eight million people a year and is the world’s leading cause of preventable death.
Radical increases in excise taxes and tobacco prices have been shown to be the most effective and cost-effective methods of reducing tobacco consumption.These are also measures expressly called for in Article 6 of the World Health Organization (WHO) Framework Convention on Tobacco Control.
Higher taxes on cigarettes, leading to higher prices, make tobacco less affordable.
Young people and low-income groups are more sensitive to tobacco price increases.Article 6 of the WHO Framework Convention on Tobacco Control (FCTC) recognizes that price and tax measures are important means of reducing tobacco consumption. Tobacco taxation is one of the main tools indicated by the WHO FCTC to reduce demand for tobacco products.
Tobacco product surcharges are those that increase the price of tobacco relative to other goods and services. They can have three objectives, according to the guidelines for implementing Article 6 of the FCTC:
- Reduce tobacco consumption,
- Generate public revenues and
- Reducing health inequalities.
One of the ways to achieve SDG 3 (Ensure healthy lives and promote well-being for all at all ages) is to increase implementation of the FCTC. WHO encourages all its member states to use tobacco taxes to achieve their health, financial and equity objectives.
The WHO proposes best practices in tobacco taxation policy including:
- The implementation of a simple excise tax framework.
- Price increases should be driven more by specific tobacco excise duties.
- Tobacco taxes must be designed to reduce affordability while taking into account the effects of inflation and economic growth.
- Simple tax systems that do not differentiate according to the characteristics of tobacco products should be adopted to limit the incentive for consumers to switch to cheaper brands.
- Implement tobacco taxation as part of a broader plan to reduce smoking.
This page presents the share of taxes and the structure of cigarette taxes in the DRC compared with other countries, as well as their evolution over time.
Information on tobacco taxation
The taxation of tobacco products is an essential political mechanism for reducing tobacco consumption. Experience shows that as tobacco taxes rise, cigarette consumption falls.
Every year, national tax authorities can mobilize taxes on tobacco products, through import duties, VAT and excise duties, to finance universal health coverage. However, the effects of illicit tobacco trade in the DRC and the current model of tobacco taxation do not allow for optimal mobilization of tobacco tax revenues and reduction of tobacco consumption. The structure of tobacco taxation may include several types of tax:- Excise duties (specific or ad valorem)
- Value-added taxes
- Import duties
- General sales taxes
Overview of different types of tobacco excise duty
| Type of tax | Excise duty and tax base | Explanation |
|---|---|---|
| Uniform tax: when the same rate applies to all cigarettes | Specific excise duty (quantity-based) | The specific duty consists of charging a fixed amount per pack of 20 cigarettes or a tax per 1,000 cigarettes or by weight. |
| Ad valorem excise duty (based on product value) | Ad valorem excise duty is based on a tax band (price calculated on the basis of the cost of production, the producer’s profit or the distributor’s margin). | |
| Hybrid or mixed tax | Excise duty combined with ad valorem excise duty | In some countries, excise duty varies by level, usually depending on brand characteristics (expensive or less expensive brands) and cigarette length. |
| Ad valorem excise duty can also be tiered or differential, depending on characteristics. |
Source: OMS
Types of taxes applied to tobacco products
Taxes are divided into two categories: direct and indirect.
Direct taxes are imposed on the profit, income, property or wealth of individuals or companies, while indirect taxes are imposed on the price of goods and services. Indirect taxes are most relevant to the taxation of tobacco products, as they directly influence price.Several types of indirect taxes may be applied to tobacco products. These include:
- Excise duties – taxes that apply to selected products (they may also apply to alcohol, fuel, sugar-sweetened beverages, etc.).
- VAT (Value Added Tax) or sales tax – VAT is a multi-stage tax on all consumer goods and services, which is applied in proportion to the price paid by the consumer for a product. It is a tax on the amount by which the value of an item increases at each stage of its production or distribution.
Some countries impose sales taxes instead of VAT. Unlike VAT, which is collected at every stage of the supply chain, sales taxes are generally levied at the point of sale on the total value of goods and services purchased. Ultimately, it’s the consumer who ends up paying the tax, whether it’s VAT or sales tax.
- Import duties – taxes on certain goods imported into a country for consumption there. In general, import duties are collected from the importer at the point of entry into the country.
- Other taxes – other indirect taxes, such as environmental taxes, which do not fall into any of the categories listed above.
One of the best-established and best-understood points of tax policy is that tobacco products should be subject to excise duty. Excise duty is the most important type of indirect tax for tobacco control, as it applies directly to tobacco products and makes the greatest contribution to reducing tobacco consumption compared with other goods, and hence to reducing consumption.
There are two basic types of excise duty:
- Specific – levied in the form of a monetary value per quantity of the product taxed (e.g. 1,000 cigarettes, a pack of 20 sticks, a kilogram of tobacco); and
- Ad valorem – levied as a percentage of the value (e.g. retail price, or producer/factory price, or retail selling price). retail price, or producer/factory price, or cost, insurance and freight value of the taxed product. Tobacco taxation in the DRC is ad valorem.
Both types of excise tax have advantages and disadvantages.
Specific excise duties are generally easier to administer and provide a more predictable revenue stream. Specific excise duties also result in relatively uniform price increases for all tobacco products to which they apply, whereas ad valorem excise duties can create greater price differences between cheaper and more expensive products, even within the same product category.In the DRC, tobacco taxes increased from 40% to 60% as of August 1, 2018, however the DRC has not yet managed to meet the adequate criteria for good tobacco taxation recommended by the WHO.
In accordance with law n°18/002 of March 13, 2018 on the excise code, tobacco and the following tobacco products manufactured in the DRC or imported are subject to excise duties determined as follows:
Tax levels on tobacco products in the DRC
| Type of tobacco products | Applicable rate |
|---|---|
| Cigars (including cut-tipped), cigarillos and cigarettes of tobacco or tobacco substitutes | 60% |
| Other water pipe products | 60% |
| Other tobacco and substitutes | 60% |
| Cartridge for electronic cigarettes | 60% |
| Electronic cigarettes | 60% |
| Homogenized or reconstituted tobacco | 60% |
Source: Article 28, Excise Code, 2018, DRC
Tobacco tax policies in the DRC
An effective tax policy must be well designed. Any government attempting to change its tax policy must first understand the fundamentals of sound tax policy, and examine the strengths and limitations of different tax regimes, how they affect prices, and the requirements for tax administration. Understanding how a country’s tobacco market operates is equally crucial for policymakers because of the inevitable relationship between the two.
The Government of the DRC recognizes the importance of financial and fiscal measures in achieving the objective of the Convention. Article 6.2 (a) of the Convention stipulates that each Party shall take into account its national health objectives with regard to tobacco control in the application of “tax and, where appropriate, pricing policies concerning tobacco products in order to contribute to the health objectives of reducing tobacco consumption“.
Evolution and classification of tax policies
The DRC also has a public health law with provisions against tobacco advertising, which are still inadequate and poorly enforced. However, tobacco taxation is lagging behind in the country, accounting for only 38.7% of the retail price.
Trends in Exercise tax rate in DRC: 2008-2020
This graph, taken from data in the Global Tobacco Epidemic Report 2021, shows that ad valorem taxes in the DRC were 14.22% in 2008, rising to 38.31% in 2020, while specific taxes, which were 14.67% in 2008, were abolished in 2018, and the value-added tax of 13.79% was introduced in 2012. Total taxes have thus risen from 28.89% in 2008 to 52.1%. However, the price of tobacco fell in 2020 to 1000 FC while there was an improvement in taxes, which would have increased the price of tobacco.
Impact of tax policy
General impact of tobacco tax policy
WHO best practice on tobacco tax policy recommends a relatively simple tax system that applies equivalent taxes to all tobacco products, with the total tax share representing more than 75% of the retail selling price and the excise duty share representing at least 70% of the final retail selling price.
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Impact of taxes on public revenue and the taxation of new products
Unpublished simulations carried out by the WHO using 2012 data,
show that if all countries increased cigarette pack taxes by 50%, this could lead to a reduction in the number of smokers by 49 million (38 million among adults and 11 million among young people). This would also prevent 11 million smoking-related deaths.In addition, this tax increase could generate additional revenues of around 101 billion US dollars for governments worldwide. These funds could be allocated to health programs and other social initiatives, such as the fight against non-communicable diseases or the universal health coverage prioritized by the DRC government.
