A policy simulation impact of tobacco excise tax increase on cigarette consumption, mortality, medical treatment cost, life-years gained, and government revenue in Indonesia

Abstract

The study aimed to examine the impact of tobacco excise tax increase on cigarette consumption, mortality, medical treatment cost, life-years gained, and government revenue in Indonesia.

The study consisted of two phases. First, the demand for cigarettes was analyzed using the two-part econometrics model. Data were retrieved from the National Socioeconomic Survey (SUSENAS) 2015, 2016, 2017, 2019, and 2020. The smoking participation was examined using logit specification, while the second part (smoking intensity) used the Generalized Linear Model (GLMs). Second, a compartmental model involving 65 million smokers was employed to assess the impact of different tobacco excise tax increased scenarios on cigarette consumption, tobacco-attributed mortality, tobacco-attributed medical treatment cost, life-years gained, and government revenue in Indonesia

Price was negatively associated with the decision to smoke and smoking intensity. The estimated overall cigarettes price elasticity was approximately between -0.4933 to -0.4277. Subgroups analysis found that youth were more sensitive to price change than adults. Furthermore, The results revealed that a 12.5-200% increase in tobacco excise taxes would reduce the number of smokers by 0.5 to 8.0 million smokers, decrease cigarette consumption by 5.7 to 90.4 billion sticks, avert tobacco attributed mortalities by 0.2 to 3.3 million, produce additional life-years by 4.2 to 68.0, reduce tobacco-attributed medical treatment costs by 1.4 to 22.7 trillion rupiahs, and generate additional government revenue by 16.7 to 176.6 trillion rupiahs.

Raising the tobacco taxes has significant benefits to public health and economics. Therefore, It is necessary to significantly increase the cigarette taxes annually by at least 30% and simplify the taxes structure to prevent smokers from switching to the cheaper brand.