A Simulation of Tobacco Excise Taxes in Zambia: A Focus on Cigarette Excise Tax Revenue Loss

This report presents findings from the Tobacco Excise Tax Simulation Model (TETSiM) for Zambia, analysing how changes in cigarette excise tax policy affect tobacco consumption, smoking prevalence, cigarette prices, and government revenue. The model supports evidence-based tobacco tax reform aimed at improving public health outcomes while strengthening domestic resource mobilisation. For Zambia, the analysis includes a retrospective simulation of cigarette excise revenue losses between 2016 and 2022 linked to the tobacco investment incentive.

Results show that Zambia’s tobacco excise taxes have not kept pace with inflation and income growth, leading to declining real cigarette prices and increased tobacco affordability. The 2016 investment incentive for locally manufactured cigarettes significantly reduced the effective tax burden, weakening the impact of tobacco taxation and resulting in substantial forgone revenue. Despite the policy’s intent to promote investment and employment, it has delivered minimal job creation while tobacco use continues to impose high economic costs—estimated at ZMW 2.8 billion annually, equivalent to 1.2% of GDP.

The report finds that the current tobacco tax structure and incentive framework undermine both fiscal and health objectives and may conflict with WHO Framework Convention on Tobacco Control (WHO FCTC) Article 5.3. Key policy recommendations include abolishing the tobacco investment incentive, simplifying the excise tax system, and implementing automatic annual adjustments of the specific tobacco excise tax to reflect inflation and income growth.