TABLE 2—

Tobacco Tax Structures: Definitions

Tax Type	Description
Ad valorem tax: a percentage of the retail price	Tends to widen price differentials by making expensive brands relatively more expensive. Offers governments the advantage that tax is automatically increased with industry price increases. Allows industry the advantage of controlling the tax level by keeping its prices low (industry can lower its prices in response to a tax increase, and prevent any public health benefit). Not generally favored by the large transnational companies that tend to sell expensive brands.
Specific tax: a fixed tax per cigarette	Reduces price differentials by adding a fixed tax to every cigarette regardless of its baseline price; thus, benefits manufacturers of more expensive cigarettes and leads to cheaper brands’ possibly being withdrawn from the market. Offers industry the advantage of raising its base price and profit without increasing the tax, and governments the advantage of being able to substantially raise price and tax revenue by a known amount; therefore, generally favored for tobacco control. Specific taxes also are generally favored by the large transnational companies that have expensive brands.
De-minimus tax: a set minimum tax per cigarette	A specific tax set if and only if the ad valorem tax does not reach a set minimum level.