Cheap smoke, costly consequences

Cheap smoke, costly consequences | Photo: Emily Lau

Tobacco multinationals have long treated low- and middle-income countries as the front line of growth. Where per-capita incomes are low, companies have leaned on affordability tactics, pricing tiers, discounts, and the sale of single sticks, to convert price-sensitive consumers and the young into lifetime customers. Public budgets, meanwhile, have become increasingly reliant on tobacco excise revenues. Whether those funds actually bolster health systems depends on national choices about earmarking and enforcement.

The affordability playbook

A well-documented industry strategy in lower-income markets is to keep entry-level prices within reach, widening the price gap across “value,” “mid,” and “premium” tiers so consumers can down-trade rather than quit when taxes rise. Research across LMICs shows the industry also exploits point-of-sale promotion and retail placement to reach non-smokers and youth, especially where advertising bans are partial.

Affordability, not just nominal price, drives consumption. Studies using measures such as the Relative Income Price find cigarette demand tracks how many minutes of work a pack costs; where incomes rise faster than prices, consumption tends to increase. Price elasticity is higher in LMICs than in rich countries, meaning well-designed tax hikes reduce use more in poorer settings.

The sale of single sticks is a crucial affordability lever. Selling one cigarette at a time lowers the immediate cash outlay, weakens the impact of tax increases, and sidesteps pack warnings, so the WHO FCTC urges countries to ban the practice. In parts of Africa and South Asia, single-stick sales remain widespread, disproportionately affecting low-income consumers and youth.

Taxes, revenues and health: three real-world cases

Philippines: earmarking excise for universal health care

The Philippines undertook sweeping “sin tax” reforms beginning in 2012 and strengthened them in 2019–2020. Current laws earmark a majority share of alcohol, e-cigarette and tobacco excise increments to the Universal Health Care (UHC) programme, with additional shares for medical assistance and health facilities. Government releases report that 60% of certain sin tax revenues go to UHC, 20% to medical assistance and health facilities, and the balance to other social priorities and transition support for tobacco farmers. Independent and multilateral analyses have repeatedly highlighted the Philippines as a regional leader in linking tobacco tax to health financing.

What it means for health systems: earmarking has expanded fiscal space for coverage and service delivery, while higher real prices have curbed consumption, an example of the “health and revenue” double dividend when taxes are well designed and revenues are ring-fenced.

United States: high revenues, fragmented health impact

The United States collects billions of dollars annually in tobacco excise taxes, yet there is no federal earmarking of these revenues for health services. Individual states set their own excise rates, which vary widely, from less than $0.40 per pack in some southern states to over $4.00 in places like New York. While the Master Settlement Agreement (MSA) of 1998 was intended to offset healthcare costs linked to smoking, most states have since diverted these funds to balance general budgets or fund unrelated projects. According to the Campaign for Tobacco-Free Kids, less than 3% of tobacco settlement and excise revenue is spent on tobacco prevention and cessation programmes nationwide.

What it means for health systems: the U.S. demonstrates how substantial tobacco revenue can fail to translate into public health gains when funds are not protected or reinvested in prevention and healthcare. The absence of earmarking and the industry’s political influence continue to weaken tobacco-control outcomes.

United Kingdom: tax revenue with health policy alignment

The United Kingdom is one of Europe’s strongest examples of combining high tobacco taxes with broad health policy coherence. Tobacco duty represents a significant revenue source, exceeding £10 billion annually, but rather than being directly earmarked, these revenues complement the public health budget funded through the National Health Service (NHS). The UK government has consistently increased excise duties above inflation and implemented plain packaging, advertising bans, and cessation programmes funded through general taxation.

What it means for health systems: while the UK does not earmark tobacco taxes for healthcare, its policy framework ensures that tax design, regulation, and cessation support operate in harmony. As a result, smoking prevalence has fallen steadily, demonstrating that coherent policy can substitute for earmarking if revenues are used within a robust public health infrastructure.

The industry’s counter-moves, and why design matters

When taxes rise, companies often absorb part of the increase on value brands, push multi-stick micro-packs, or intensify single-stick retailing to preserve volume, especially where enforcement is weak. Recent empirical work documents targeted under-shifting in cheaper tiers and post-tax pricing that blunts cessation. These tactics underscore the need for strong minimum price laws, comprehensive single-stick bans, and specific excise structures that compress price gaps between tiers.

Illicit trade is the other pressure point. In several markets, down-trading to illicit cigarettes can expand if tax hikes outpace enforcement. That does not negate the health case for higher taxes, but it raises the premium on track-and-trace, tighter border controls, and consistent prosecutions.

Do tobacco taxes actually pay for care?

Globally, two models dominate. In “earmarked” systems (Philippines), legislators hard-wire a share of excise to health services or promotion. This increases transparency and political support, and it protects prevention budgets across political cycles. In “non-earmarked” systems (United States, United Kingdom), tobacco excise feeds the general pot, which can still fund health but lacks a direct link. Evidence suggests earmarking can strengthen public acceptance of higher tobacco taxes and stabilize prevention financing, though public-finance purists warn about rigidity. The choice is ultimately political and institutional.

Global society on the frontline of tobacco cessation

Beyond government taxation and regulation, several non-governmental organisations play a decisive role in helping individuals quit smoking and exposing the tactics of the tobacco industry.

Campaign for Tobacco-Free Kids (CTFK)

Based in Washington, D.C., CTFK is one of the most influential global advocacy groups working to reduce tobacco use among youth. It supports legislative campaigns for higher tobacco taxes, graphic warnings, and smoke-free environments while funding cessation and prevention initiatives across more than 100 countries. CTFK has been instrumental in pushing for transparency in how tobacco revenues are spent in the United States.

Action on Smoking and Health (ASH)

Founded in 1971 in the United Kingdom, ASH advocates for stronger regulation, cessation support, and the reduction of tobacco-related inequalities. The organisation provides evidence-based resources to local health authorities and lobbies for policies such as smoke-free legislation, plain packaging, and nicotine replacement therapy accessibility. Its research and advocacy contributed to the UK’s steady decline in smoking rates over the past two decades.

The Global Alliance for Tobacco Control (GATC)

Formerly the Framework Convention Alliance, GATC unites more than 300 organisations worldwide in support of the WHO Framework Convention on Tobacco Control. It promotes policy coherence, monitors compliance, and empowers local NGOs in low- and middle-income countries to advocate for stronger tobacco control measures. Its focus extends beyond cessation, addressing the structural and commercial determinants of tobacco addiction.

Policy implications for countries facing affordability tactics

Strengthening public health and protecting fiscally constrained households requires a package:

·       Raise and restructure excise toward specific or mixed systems that narrow brand-tier price gaps and outpace income growth, preserving real price increases.

·       Ban single-stick sales and enforce it to keep health warnings effective and prevent “micro-purchases” by youth and the poor.

·       Consider earmarking part of the yield for UHC and health promotion, backed by transparent reporting.

·       Invest in enforcement against illicit trade so tax policy changes translate into higher prices on the street.

Big Tobacco’s growth in low-income markets has relied on keeping cigarettes affordable through tiered pricing, single-stick sales and point-of-sale promotion. Well-designed excise policies can reverse that calculus, reduce smoking and raise revenues. Countries that earmark a share of tobacco taxes, such as the Philippines for universal health care, offer concrete examples of how fiscal tools can reinforce health systems. Where revenues are not earmarked, as in the United States or the United Kingdom, strong tax design and coherent health policy remain crucial. The stakes are not abstract: in settings where a single cigarette costs less than a bus fare, affordability strategies today translate into hospital admissions tomorrow.