Making cigarette taxes more effective in Mozambique: A simulation analysis using the Tobacco Excise Tax Simulation Model (TETSiM)

Abstract

Cigarette price tax shares in Mozambique are among the lowest in Southern Africa. The excise tax share of the price of the most-sold brand is 14.7%, and the total tax share is 28.5%. The average excise tax share for the Southern African Development Community is 36.7% and the average total tax share is 51.6%. We used the Tobacco Excise Tax Simulation Model (TETSiM), to simulate the impact of a substantial cigarette excise tax increase on prices, tax shares, consumption, tax revenue, and smoking prevalence, between 2023 and 2028. We simulated three scenarios. Scenario 1 assumes that the cigarette excise tax adjustments are as stipulated in the Excise Tax on Specific Products Law for 2023-2025, and then increase by 4% annually between 2026 and 2028. Scenario 2 proposes that the excise tax increases by the sum of inflation, income growth, and an additional 30%, annually. We assume full tax pass-through for both scenarios 1 and 2. In scenario 3, we use the same annual tax adjustments as scenario 2, but assume tax over-shifting for imported and most-sold brands. Our findings indicate that, by 2028, the excise tax share decreases from 14.7% to 13.9% in scenario 1, but increases to 40.2% in scenario 2, and to 35.8% in scenario 3. The total tax share drops from 28.5% to 27.7% in scenario 1, but increases to 53.9% in scenario 2, and to 48.1% in scenario 3. Smoking prevalence is expected to drop from 9.80% to 9.77% in scenario 1, to 8.23% in scenario 2, and to 8.08% in scenario 3. Scenario 2 results in the highest expected total tax revenues (173% increase). The study provides insights on the importance of appropriately revising cigarette tax policies in Mozambique. Substantial tax increases will contribute to a healthier population and a more sustainable fiscal landscape.