Estimating the Optimal Excise Tax Rate on Cigarette in Iran

Abstract

Background: Taxes are not only an important source of government revenue, but also one of the most important policy tools for tobacco control. The present study was designed to determine the optimal tax rate on cigarettes.Methods: A descriptive-analytical study was conducted using the survey data from the Statistics Center of Iran from 2015 to 2019. The survey is carried out every year at the national level and households are selected by three-stage stratified sampling method. The inclusion criteria for our study were based on household information in the study period and its completeness and legibility. The Poisson regression model was used to estimate the factors affecting the quantity of cigarette demand in households with smoker members. The optimal tax rate on cigarettes was calculated based on the concept of Laffer curve. Statistical analysis was performed using Stata version 15.1.Results: The study was performed on 191,648 Iranian households. The cigarette price elasticity of demand was around -0.24. There were statistically significant relationships between the cigarette demand and variables including having a member of 15-18 years in the family; having male member of 19-64 years; having a female member of 19-64 years old; the study periods; age, education level; and job status of the household head (P<0.05). According to the Laffer curve simulation, if cigarette tax rate is increased to account for 219% of the retail price, that will maximize incremental tax revenues at around US$2.39 billion.Conclusion: The government can achieve public health goals as well as maximum tax revenues by raising cigarette taxes by almost 200% and raising the average price of a cigarette pack from $1 to about $3.

Keywords

• taxes
• cigarette smoking
• tobacco control
• iran