OECD Urges Tax Reform in Latin America

Countries in Latin America and the Caribbean (LAC) could reduce tobacco consumption and its societal cost by reforming the design and administration of tobacco taxes, according to a new OECD report.

The authors of the study argue that the social and economic costs of tobacco use across LAC countries outweigh the revenue from tobacco taxes. Smoking-attributable medical costs can reach up to an average of 1.5 percent of GDP per year.

“Taxes play a vital role in limiting the social and economic costs of smoking,” said OECD Secretary-General Mathias Cormann in a statement. “Governments should be sure to maintain, and where necessary strengthen, the stringency of tobacco taxation.”

The most common policy gaps, according to the report, are lack of mechanisms to ensure a minimum amount of tobacco excise tax is paid and that taxes are not applied consistently across different tobacco products, including new tobacco and nicotine products. Tax rates on cigarettes remain below the World Health Organization’s recommendation of at least 75 percent of the retail price.

The OECD report recommends that LAC countries increase tobacco excise tax rates, seek to account for the strategic responses of the tobacco industry when designing tobacco tax policy, strengthen tobacco tax administration, introduce accompanying measures to tackle illicit tobacco trade, ensure that tobacco excise and income tax policies are coherent and strengthen domestic and regional tobacco tax cooperation.