Taxation
Tobacco taxes are the most cost-effective tobacco control tools.
Increasing taxes reduces the consumption of tobacco products, increases government revenue, and saves lives.
This page provides information on current tobacco tax policies in Nigeria, shows the effects of increasing tobacco taxes, and debunks common industry arguments against tax increases. It also shows the experience of similar countries that have successfully increased taxes.
WHO calculates that if all countries increased taxes on cigarette packs by 50%, governments around the world would earn an extra US$ 101 billion in revenue; there would be 49 million fewer smokers and this would avert 11 million deaths from smoking worldwide.
WHO
Nigeria has a mixed excise tobacco tax system consisting of a combination of specific and ad valorem taxes.
The specific tax is currently (as of 2024) ₦84 per pack of 20 cigarettes. The ad valorem tax is 30% of the unit cost of production (UCP)/manufacture price. Both of these rates were last revised upwards in 2022.
The specific tax was further increased to ₦164 in June 2023, but this new rate was suspended and reduced to the original rate of ₦84 per pack of 20 cigarettes barely after two months.Prior to 2018, Nigeria only taxed tobacco using an ad valorem tax of 20% of the manufacture price. The specific tax was first introduced in June 2018 at ₦20 for a pack of cigarettes. This increased to ₦40 in 2019, ₦58 in 2020, and ₦84 in 2022, and has remained the same up to date. Article 6 of the World Health Organisation Framework Convention on Tobacco Control (WHO FCTC) does not recommend this tax system. Rather, the recommended tax structure is a specific or mixed excise system with a minimum specific tax floor because they are easily administered.
The average retail price for a pack of Nigeria’s three most sold brands of domestic and foreign cigarettes increased from ₦220 in 2018
to ₦430 in 2023. This increase is possibly due to the rise in the specific tax from ₦58 to ₦84 per pack of 20 cigarettes in 2022. Excise taxes make up 25% of the retail price of a pack of cigarettes. Other tobacco products are taxed with a specific tax. In 2022, other tobacco products, which include smokeless tobacco products and shisha, were taxed at ₦1,000 per kg or ₦3,000 per litre.Types of taxes applied to tobacco products
- Specific Tax: A tax levied based on quantity – eg tax per carton / per cigarette / per gram loose leaf.
- Ad Valorem Tax: A tax based on monetary values – eg a percentage on the factory or retail price.
- Value Added Tax (VAT): Levied as a percent of value of many different goods. Nigeria has a relatively low VAT of 7.5% (increased from 5% in 2020).
- Import Duties: Levied on imported goods
Tobacco Taxation Score in Nigeria
The overall performance of the cigarette excise tax structure is assessed through the international metric – the Tobacconomics Tax Scorecard – which is based on a 5-point scale (0 – 5), with the highest score indicating the best tax system, and the lowest score indicating the worst tax system. The Tax Scorecard is based on the average of four criteria used to assess tax policy structure: cigarette prices, change in affordability, tax burden (share of retail cigarette prices accounted for by taxes), and tax structure.
The latest (i.e., 2022) Nigerian Cigarette tax score is 1.25, which is the average of the scores of prices (score of 1), changes in affordability over time (score of 0), tax burden (score of 1), and the tax structure (score of 3).
The Nigerian cigarette tax score is below both the African region average score of 1.64 and the global average score of 2.28. This low value implies that the overall performance of the Nigerian cigarette tax system is poor.Figure 1 presents the trends for Nigeria’s Cigarette tax scores to understand the performance of its tobacco tax system from 2014 to 2022. Although the Nigerian cigarette tax score improved by 67% in 2018, from 0.75 in 2014 to 1.25 in 2018, this score has remained the same for the past 5 years (i.e., since 2018), and is still below the regional average.
The past increase in this score was due to the improvement in the tax structure through the adoption of specific excise taxes in addition to the ad valorem taxes in 2018. Nonetheless, the tax score has not been improving because of the affordability of cigarettes, which has not changed for the past 10 years (since 2012), low prices and total tax burden. Figure 2 presents the trends of the components of the overall tax scorecard, individually from 2014 to 2022.International Agreements on Tobacco Taxation
Nigeria ratified the World Health Organization Framework Convention on Tobacco Control (WHO FCTC) in 2005. Article 6 of the WHO FCTC recommends the sum of excise taxes (specific and ad valorem) make up at least 70% of the retail price of cigarettes, while that of the total taxes (sum of excise taxes including VAT and duties) make up at least 75%.
The total tax burden in Nigeria (the sum of all tobacco taxes as a percentage of the retail price) is 44% as of 2023. Although up from the 32.5% burden in 2020, this value is significantly lower than the 75% tobacco tax incidence benchmark recommended by Article 6 of WHO FCTC. The lower total tax burden value usually indicates that the taxes are not working and are ineffective in reducing tobacco use.Nigeria is also a member of the Economic Community of West African States (ECOWAS), and their tax directive requires members to implement a specific tax of at least $0.40 (₦122)
per pack of 20 cigarettes and an ad valorem tax of at least 50% .Nigeria falls short of both these measures. To meet the ECOWAS directive, the ad valorem tax would need to increase from 30% to at least 50% and the specific tax would have to increase by ₦38, i.e., from ₦84 to ₦122.
It is estimated that Nigeria raised ₦55 billion ($155.1 million) in tax revenue from tobacco taxation in 2020.
Further, a different simulation study based on 2018 data estimated that the quantity of cigarettes purchased would decrease by 32% and government revenue would increase by 127% on average if Nigeria increased tobacco taxes to the levels of the ECOWAS tax directive.Price of a 20-Cigarette pack of the most sold brand in ECOWAS |
- Cigarette Prices|
- Higher than Nigeria
- Below Nigeria
- Nigeria price
- Currency
Data source: WHO report on the global tobacco epidemic
In 2023, Nigeria’s cigarette prices were higher than in 2020. The high Nigerian prices are due to the increase in ad valorem taxes and specific taxes in 2022. For effectiveness, the taxes should be increased further by at least the inflation and income growth rates and consistently to have more upward pressure on the prices, to ultimately decrease tobacco consumption.
It is a well-known fact that approximately 50% of smokers will die from tobacco-related diseases.
However, increasing taxes on tobacco products – and meeting the ECOWAS and WHO standards can reduce tobacco-related deaths.Evidence from the Tobacco Excise Tax Simulation Model (TETSiM) shows that if Nigeria had met the ECOWAS tax directive in 2020, 3,000 smokers who would have died prematurely from tobacco-related diseases in that year would have been prevented. An additional 90,000 people would not die prematurely from tobacco-related diseases over the next 30 years. Even more, lives could be saved by following WHO recommendations; if Nigeria had met WHO recommendations in 2020, 6,000 fewer Nigerians would have died from smoking-related diseases that year, and 189,000 lives would be saved over the next 30 years.
There are other important impacts that occur after increasing tobacco taxes: (1) tobacco use decreases, and (2) government revenue increases. The decrease in consumption has an added impact – there is also a decrease in disease and death caused by smoking-related diseases.
When we presented a road map for implementation, the government said we don’t have money because revenue is shrinking. If we had data telling us how much they would generate with tobacco control implementation, it would have been very useful.
TCDI Assessment mission
In low and middle-income countries, studies have shown that increasing the price of cigarettes by 10% leads to a 8% decrease in tobacco consumption.
Tax increases can affect consumption through three channels:1.
Higher prices encourage people to quit smoking and make people less likely to continue smoking.
2.
Some smokers will smoke fewer cigarettes.
3.
Higher prices discourage people from starting to smoke. Young people are more price-sensitive than adults. Therefore tax increases can have a big impact on this group. Most people start smoking as teenagers, so this is an especially important group to target.
Nigerian Tax Model
Using data from Nigeria and lessons from international literature, we can predict how increases in tax will affect tobacco consumption, government revenue, and mortality using the Tobacco Excise Tax Simulation Model (TETSiM) developed by the Research Unit on the Economics of Excisable Products (REEP).
TETSiM is a “tool to quantify the likely impact of a change in the cigarette excise tax structure and/or the level of the cigarette excise tax on a number of variables, including the price of cigarettes, cigarette consumption and excise tax revenue”.
The TETSiM has been used for Nigeria, as well as for other countries, including South Africa, Kenya, and Ghana, to evaluate how changes in tobacco tax rates and structures will impact their economies.
This model is used by both academics and policy makers.In the figures below, we will show how increases in the specific tax would impact tobacco consumption, government revenue, and mortality, and highlight how these would be impacted if Nigeria met the minimum requirements of the ECOWAS tax directive and WHO recommendations.
Simulation of the impact of tax increases on consumption and tax revenue
It is estimated that Nigerians smoked 17.4 billion cigarettes in 2020.
If cigarette taxes had met the ECOWAS directive of a 50% ad valorem tax and ₦122 specific tax per pack, the total number of cigarettes smoked would have decreased from 17.4 billion to 15.9 billion in 2020. Excise taxes would have accounted for 52% of the retail price of cigarettes if the ECOWAS directive was met. The WHO recommends that excise taxes make up 70% of the retail price of cigarettes.In the graphs below, we present two scenarios, one of which is the most conservative (Scenario 1) and the other the least conservative (Scenario 2):
Scenario 1 – most conservative case: This aims to increase the specific excise tax by $0.4 per year (the uniform excise specific tax increases by 45%, 67%, and 66% from year 1 (2022) to year 3 (2024), respectively). The ad valorem tax increases by 30%, 40%, and 50% in years 1, 2, and 3, respectively).
Scenario 2 – least conservative case: This aims to increase the specific excise tax to reach $1.00 by the end of year 3 (the uniform specific excise tax increases by 45%, 138%, and 189% in years 1 (2022), 2 (2023), and 3 (2024), respectively, and the ad valorem tax increases by 30%, 40%, and 50% in years 1, 2, and 3, respectively).
Total consumption (packs) and excise tax per pack (Naira)
Over-shift |
Under-shift |
Data source: Research Unit on the Economics of Excisable Products
Total consumption (packs) and real excise revenue (billion Naira)
Over-shift |
Under-shift |
Data source: Research Unit on the Economics of Excisable Products
Total tax amount in real Naira for mid-price brands |
Scenario 1
Scenario 2
Data source: Research Unit on the Economics of Excisable Products
Tobacco Tax Best Practices
The WHO and the WHO FCTC Secretariat have shared some best practices for implementing efficient and effective tobacco taxes to enhance compliance, collection of revenue, and to reduce the risk of illicit trade.
Specific excise taxes treat all tobacco products equally
Specific excise taxes treat all tobacco products equally
All tobacco products pay the same amount of tax with specific taxes, regardless of brand or type of product. In countries that use a combination of specific and ad valorem taxes, the WHO recommends a minimum specific tax floor and that the specific tax component makes up a large proportion of the total excise tax.
Nigeria is in the process of following this advice by increasing the specific tobacco excise tax while keeping the ad valorem taxes the same.The WHO recommends automatically adjusting specific tobacco taxes, since one disadvantage of specific taxes is that their value can be eroded by inflation.
Inflation and changes in household income should be taken into account when establishing taxation levels. Regular adjustments should be made to ensure that tobacco products become less affordable over time.Apply comparable tobacco taxes to all tobacco products
Apply comparable tobacco taxes to all tobacco products
All tobacco products, including shisha and e-cigarettes, should be taxed uniformly, especially where the risk of substitution exists. Increasing taxes on some products but not others could lead people to switch to more affordable tobacco products. In 2022, Nigeria introduced a tax on other tobacco products, including shisha, at ₦1000 per kg or ₦3000 per litre. Like cigarettes, these taxes were increased in June 2023, but after two months, they were suspended and reduced to their 2022 original levels.
Include comprehensive tobacco taxes in tobacco control strategy
Include comprehensive tobacco taxes in tobacco control strategy
The inclusion of comprehensive tobacco taxes in Nigeria’s national tobacco control strategy is crucial for safeguarding public health and fostering sustainable development. The Nigerian government has shown a commendable commitment to curbing the detrimental effects of tobacco use through robust taxation policies. Levying comprehensive taxes on tobacco products aims to deter consumption, protect citizens from health risks, and generate revenue for public health initiatives and socio-economic advancement. This approach aligns with global best practices endorsed by WHO and demonstrates Nigeria’s proactive stance in addressing the nexus between public health and fiscal policy.
These strategies should be in line with other policy measures recommended in the FCTC and should include things such as smoke-free policies, large graphic health warnings, and tobacco advertising, promotion and sponsorship (TAPS) bans.
Tobacco tax administration should be strengthened
Tobacco tax administration should be strengthened
A strong tax administration will reduce opportunities for tax avoidance and tax evasion and will ensure that tax revenue is maximised. This would include measures such as licensing of the tobacco supply chain, use of fiscal markings such as track and trace, and building the capacity of tax enforcement agencies.
Efficient and effective tobacco tax systems and administration
Efficient and effective tobacco tax systems and administration
These systems should be structured to minimize the costs of compliance and administration which in turn reduce tax evasion and the risk of illicit trade. When establishing or increasing national levels of taxation, countries should consider having regular adjustment processes or procedures for the periodic revaluation of tax systems and administration, as well as tobacco tax levels.
Examples of specific policies that can be implemented:
- Earmarking taxes. Earmarking taxes sets aside revenue from tobacco taxes for a specified expenditure, for example funding primary health care, especially in the treatment of tobacco-related diseases, smoking cessation services, prevention programs, and tobacco control. Examples of tobacco tax earmarking are found in the United States of America, Thailand, Romania, Egypt, Algeria, and Botswana.
- Track and Trace systems. These allow governments to track tobacco products from where they are produced to their final point of sale (tracking) and to trace them back to the point of production from the final retail point (tracing). These systems can help reduce illicit trade and increase tax revenue.
Lessons from Other Countries
Countries, such as The Gambia, South Africa, Colombia, and Montenegro provide best-case studies of countries that have successfully implemented changes to their tobacco taxes.
South Africa
Increasing tax rates does not drastically increase illicit trade
Between 1993 and 2009, South Africa increased tobacco taxes by more than 10% a year over and above the inflation rate. During this time, smoking prevalence fell from 32% to 20.5%. Government revenue increased from ZAR3.7 billion in 1993 to ZAR12 billion in 2009 (in constant 2014 prices).
Despite warnings from the tobacco industry that this would lead to a drastic increase in illicit trade, the illicit trade share remained around 5%.
The South African government improved public health by decreasing smoking and was able to increase revenue. Despite the rapid increase in the excise tax, there was no noticeable increase in illicit trade.Between 2010 and 2017, illicit trade increased significantly, despite the fact the taxes increased at a rate of 1% – 2% a year, compared to an average of 10% between 1993 and 2009. During this time, a specialized unit that focused on illicit trade in tobacco in the South African Revenue service was disbanded. This significantly weakened the enforcement of tobacco control laws.
The Gambia
Increasing taxes decreases consumption and increases government revenue
Before 2013, the Gambia charged an ad valorem tax on cigarettes and did not charge an excise tax on other tobacco products. In 2013, the Gambia moved from an ad valorem excise tax to a specific excise tax on cigarettes and introduced a specific excise tax for other tobacco products.
The specific excise tax on a pack of 20 cigarettes increased from GMD5 in 2013 to GMD30 in 2023. Between 2013 and 2016, the specific excise taxes have increased by a maximum of GMD 4 yearly.
However, between 2016 and 2020 the specific excise taxes declined, and increased substantially after 2020. All tobacco products in the Gambia are imported; therefore, imports are a good proxy for consumption. Between 2012 and 2014, cigarette imports decreased from 1.1 million tons to 550,000 tons. Excise tax revenue more than doubled, from GMD89 million to GMD258 million, over the period of consistent yearly tax increases (2013 to 2016). While the Gambia‘s total tax burden is 47.2% (as of 2023), below the 75% recommended benchmark by the WHO, cigarette affordability has decreased since 2012. The Gambia officials also work closely with WHO to increase tax rates further and implement other tobacco-control best practices.Colombia
Tax increases can be paired with other tobacco-control policies to have the greatest impact
In 2015, Colombia was planning to increase tobacco taxes drastically. The Colombian government was worried that this might lead to an increase in illicit trade. They passed a new anti-smuggling law before the tax increase. Tobacco taxes on a pack of 20 cigarettes increased from $0.23 to $0.71. After this tax increase, the price of a pack of cigarettes nearly doubled. Consumption fell from 674 million packs in 2016 to 446 million packs in 2018. Despite this large decrease in consumption, revenue nearly doubled over the same time period, and there was no significant increase in illicit trade.
Montenegro
The importance of consistent tax increases to strengthen tobacco taxation policy
Montenegro has a total tobacco tax burden of 76% and meets the recommended 75% tax burden threshold by the WHO FCTC. The country also has a mixed tobacco excise tax system, consisting of both ad valorem and specific components, and the specific component has a particular minimum threshold/floor. This system is also recommended by Article 6 of the WHO FCTC.
Montenegro relies more on specific tobacco excise taxes than ad valorem taxes. From 2010 to 2023, Montenegro has consistently increased its specific tobacco taxes by close to tenfold, and in 2022 and 2023, the country raised the specific taxes biannually.
Thus, over this period there was a concomitant gradual increase in average tobacco prices by nearly 20%. Cigarette pricing forecasts also reveal that prices will increase by 5.45% and 3.35% in 2024 and 2025, respectively. Given that illicit trade is considered a threat to tobacco taxation in the sense that products sold in the illicit market evade taxes, to complement tobacco tax increases, Montenegro prohibited the storage of tobacco products in the free trade area, which was the country‘s source of cigarette smuggling. As a result, the illicit trade market decreased by nearly 50%, from 51% (in 2019) to 26% (in 2022). Because of these commitments, Montenegro was finally selected to be part of the FCTC 2030 project to further accelerate its tobacco taxation policies to finally improve public health.The tobacco industry will always oppose tax increases on its products.
Increases in the excise tax on tobacco will make their products more expensive and less affordable, which will lead to a decrease in tobacco consumption, or they will have to absorb at least part of the tax increase, which will lower profit margins.
Their arguments against tax increases are not supported by evidence or are greatly exaggerated. The tobacco industry uses many arguments to discourage tobacco-control policies. Other examples of tobacco industry myths have been compiled by The Campaign for Tobacco-Free Kids.Myths and Facts
Tobacco industry interference has been particularly strong against efforts to increase tobacco taxes. The industry aims to ensure that tobacco products remain affordable, while protecting their own profits – at the expense of public health
WHO
Myth: Cigarette tax increases will hurt tobacco farmers.