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Tobacco Tax Policy Reform under WB Development Policy Opera Tobacco Tax Policy Reform under WB Development Policy Opera

Tobacco Tax Policy Reform under WB Development Policy Opera - PowerPoint Presentation

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Tobacco Tax Policy Reform under WB Development Policy Opera - PPT Presentation

The Colombian Experience Jasmin Chakeri Program Leader Equitable Growth Finance and Institutions Mexico amp Colombia Roberto Iunes Senior Economist Health Nutrition and Population GP ID: 613691

fiscal tax health tobacco tax fiscal tobacco health reforms increase amp reform support peace revenue financing price context component

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Slide1

Tobacco Tax Policy Reform under WB Development Policy Operations:The Colombian Experience

Jasmin ChakeriProgram Leader – Equitable Growth, Finance and InstitutionsMexico & ColombiaRoberto IunesSenior Economist – Health, Nutrition and Population GPLatin America & the Caribbean

Washington DC, April 19, 2017Slide2

Outline of Presentation

Development Policy Financing instrumentColombian contextTobacco tax in ColombiaObjectives of the comprehensive tax reformsSupport from the WBG

OutcomesLessons learnedSlide3

Development Policy Financing (DPF) Instrument

Financing for general budget supportProgram focuses on achieving measurable development results through government policies and institutional actionsAdequate macroeconomic framework as assessed by the World Bank

Upstream analytical work underpinning the program; parallel technical assistance

Customize content and design to country circumstancesSlide4

Colombian context

Economic slowdown following oil price shockImpact on fiscal accounts Peace Agreement and implementation of post-conflict agendaFiscal consolidation while protecting social and peace-related spendingMove towards a “new economy” that relies less on extractives industriesSlide5

Tobacco tax in Colombia (pre-reform)

Represents one of the most important departmental taxesRevenue earmarked for health sector financing (and sports)Dual structure (introduced in 2010)Specific component: COP659/pack in 2016 (updated annually by CPI inflation)Ad valorem component: 10% of sales value

General VAT rate (16%) applied as wellSlide6

Tobacco tax in Colombia (pre-reform) cont.

Price per pack of cigarettes lowUS$1.81 (PPP) for most-sold brand, compared to US$2.5 (PPP) in other Latin American countries and US$7.03 (PPP) in OECD countriesShare of taxes in sales price low49.4% vs. 53% average for the Americas Overall collections from tobacco tax low0.07% of GDP in 2013, compared to 0.59% in Chile and 0.21% in MexicoSlide7

Objectives of the comprehensive tax reform

Creation of Tax Commission in 2015 to prepare comprehensive proposalSeveral objectivesIncrease tax revenueEnhance equitySimplify the tax system

Improve competitivenessAddress externalities (public health & environment)Increase liquor & wine tax

Increase tobacco tax

Introduce sugary drinks tax

Environmental taxes

Difficult political environment

Rejection of first Peace Agreement

Reaching peace remained No. 1 political prioritySlide8

Support from the World Bank Group

DPF to support fiscal sustainability and competitiveness reformsFiscal reforms to help adjust to the new environment of low oil prices and create space for peace-related spendingStructural reforms to diversify the economy and improve competitiveness in the context of the “New Economy”Close cooperation between WB macro-fiscal, trade & competitiveness and health teamsDialogue on overall tax reform with

MoF: fiscal point of view (generate revenue)Dialogue on tobacco control with

MoH

: public health point of view (reduce consumption)

Dialogue on customs with

MoH

and

MoF

: reduce smugglingSlide9

Support from the World Bank Group

Questions that needed to be addressedWhat is the “optimal” tax rate? ElasticityWill tax increase lead to an increase in smuggling?Should there be one large increase or a more gradual approach? What is the short-term vs. long-term effect on the poor?WB provided technical expertise: in-house and international experts

WB also brought convening power: joint meetings with MoF and MoH

to bridge differences Slide10

Outcomes

Increase in the specific component of the tobacco tax To COP1,400 in 2017To COP2,100 in 2018, adjusted by CPI inflation + 4pp thereafterAd valorem component maintained at 10% (but over total sales price)General VAT rate raised from 16% to 19%

Additional revenues earmarked to finance health insuranceTax reforms accompanied by stronger anti-contraband measures (Anti-Contraband Law)

Estimated fiscal impact: COP1 trillion in additional revenue through 2022

Positive health impactSlide11

Lessons learned

Even in the context of fiscal consolidation, it is possible to implement reforms that benefit public health while at the same time increasing fiscal revenueTobacco tax reforms need to be accompanied by stronger tax administration and enforcement, especially anti-contraband measuresEvidence is critical: to inform public opinion, challenge interest groups and assure decision makers of the soundness of their decisions