WHO's Conflicted?


The WHO's press release for World No Tobacco Day once again reiterated its view that the scientific evidence on e-cigarettes as a cessation aid is inconclusive and that they generate toxic chemicals linked to cardiovascular disease and lung disorders. It suggests that views to the contrary are marketing ploys of the tobacco industry that additionally employs strategic campaigns to hook children on these products. It truly beggars belief that an organisation whose sole purpose is safeguarding public health chooses willfully to ignore a large body of scientific studies that show both the efficacy of vaping as a quitting tool and substantially reduced health risks compared with cigarettes.

In this blog, we look at arguably the largest stumbling block to reducing the harm caused by combustible tobacco use, which is the fundamental conflicts of interest within the WHO Framework Convention on Tobacco Control (FCTC). These conflicts extend well beyond state ownership of tobacco companies, although this is problematic in itself.

We draw from the valuable work done by Just Managing Consulting in its report, Contradictions and Conflicts: State ownership of tobacco companies and the WHO Framework Convention on Tobacco Control. It was produced with the help of a grant from the Foundation for a Smoke-Free World.

The report concluded that there was an inherent contradiction in the FCTC because it tries to accommodate state-owned tobacco interests. Governments that are genuinely committed to the FCTC are fundamentally conflicted if they also own tobacco interests because the implementation of the FCTC requires them to protect against commercial and other vested interests of the tobacco industry. There are currently 18 countries where governments own 10%, or more, of at least one tobacco company, of which 17 are signatories to the FCTC and 8 of those have 100% ownership of at least one tobacco company. The list of 17 includes large markets such as China, Japan and India.

In most of these countries, however, governments collect significantly more revenue from excise and sales taxes on tobacco products than they do from the profits of these state-owned enterprises. Total taxes account for over 50% of the retail price in 10 countries listed and for more than 40% in 12 of them.

Tax - of retail pricepngSource: WHO

Included in the pre-tax price are retail and wholesale margins, manufacturing costs as well as overheads. In a country where tax totals 50% of the retail price, a manufacturer's pre-tax profit might amount to 15%, depending on how efficiently the enterprise is managed and its capital structure.

It seems that the inherent conflict highlighted in the report extends to all countries and not only those where there is state ownership of the tobacco industry. According to WHO data, total taxes (excise and sales tax) range from zero to as high as 88% of the retail price of a pack of cigarettes, with an arithmetic average of over 50%.

Tax - of retail price mappng
Source: WHO

Not only do tax revenues from tobacco substantially exceed the profits of the tobacco industry, but they also fund a significant proportion of government expenditure in a large number of countries.

The chart below shows countries where the annual tax revenues from tobacco products at the national or federal level equal or exceed 5% of general government final consumption expenditure. China, at c.10%, is a notable inclusion, but we note other large markets like Indonesia (13%), Turkey (10%), and Ukraine (6%). We have used tax revenue data published by the WHO and government expenditure data reported by the World Bank. The list is not exhaustive as tax revenue figures are not available for all countries and, for some, only partial statistics have been collected. Furthermore, they exclude state taxes which are substantial revenue contributors to, for example, state government revenues in the US.

gov tax1png

Source: WHO, World Bank

For the sake of completeness, we show countries where tobacco tax revenues are still meaningful - between 2% and 5% of general government final consumption expenditure, below.

gov tax2png

Source: WHO, World Bank

With the WHO's continued insistence on demonising lower-risk alternatives to cigarettes, it is providing governments who are seeking to protect their tobacco tax base both moral and legal justification for banning or restricting reduced-harm nicotine products. In doing so, it is perpetuating more than eight million tobacco-related deaths every year.