Tobacco Taxation in Zambia
Taxation is the most effective method of increasing the price of tobacco products, reducing affordability, and reducing quantity demanded and consumption, while also increasing government revenue.
The effectiveness of Zambia’s excise tax on tobacco products is reduced by; i) the administration of the tax as a differential (tiered) tax, and ii) the absence of an automatic adjustment for both inflation and income/per-capita GDP growth, which have outpaced any tax increases in recent years.
Zambia’s tobacco tax policies rate poorly when compared to best practices. In 2021, Zambia scored 1.38 out of 5 on the Tobacconomics scorecard,
where 1 is the lowest and 5 is the highest score measured relative to best practice.The page provides insights into the tobacco taxation policy in Zambia and highlights its impact on the prices of tobacco products, consumer habits, health, and government revenues. The key datasets for these analyses were availed from the Zambia Revenue Authority (ZRA), the Zambia Demographic and Health Survey 2018,
and Zambia International Tobacco Control (ITC) Wave I and Wave 2 Surveys 2014.
Zambia’s Tobacco Taxation Policy
The most cost-effective method of reducing tobacco consumption is increasing taxes on tobacco products. Taxation on tobacco products increases retail prices and reduces affordability, particularly among the younger population who are more susceptible to addiction. Among low and middle-income countries, studies have shown that on average, a 10% increase in tobacco taxes results in a 4% to 8% reduction in tobacco demand.
Increasing tobacco taxes also enhances government revenue and provides resources that can be used to respond to the health and economic effects of tobacco consumption. To maximize the benefit from tobacco taxation, the structure of the tax system should be simple to implement and uniform across all products.
Types of tobacco taxes
Zambia applies a specific and tiered (differential) excise tax on cigars, cheroots, cigarillos and cigarettes. Other tobacco products (as specified in table 1) attract an ad valorem and tiered tax. The tiered tax is differentiated on the basis of the source of the tobacco product i.e. imported or domestically manufactured.
Types of tax applied to tobacco products
Excise taxes
- Ad valorem taxes are levied on the value of the product (e.g., a percentage of the cost, insurance, and freight (CIF) or the ex-factory price).
- Specific taxes are charged based on quantity (e.g., K88.75 per Kg).
Uniform or tiered (differential) tax
- Uniform excise tax rates are applied to tobacco products at the same rate, regardless of underlying characteristics (e.g. source, price level, size, type of packaging, with or without filter, etc.). Uniform taxes can be either specific or ad valorem taxes.
- Tiered (differential) excise tax rates vary depending on factors such as source, price, cigarette length, presence of a filter, or a manufacturer’s productive capacity. A tiered tax can apply to both specific and ad valorem excise taxes.
Other tobacco taxes
- Value-added taxes (VAT), general sales taxes, duties on tobacco product imports and/or exports, and/or other special taxes or levies.
To optimize the effectiveness of taxation, governments implement the following adjustments:
Make regular adjustments to specific excise taxes to account for inflation and income trends, which reduce the affordability of cigarettes.
Make additional exogenous tax increases, to disincentivize the production and consumption of tobacco products.
Tax structure in Zambia
The effectiveness of the specific excise tax on tobacco products is significantly dampened by its administration as a tiered tax. Domestically manufactured tobacco products are disproportionately more affordable, which exposes poor communities and youth to tobacco consumption. Furthermore, the absence of an automatic adjustment for both inflation and income/per-capita GDP growth, which have outpaced any tax increases in recent years, also makes tobacco products more affordable, and dampens the effectiveness of the excise tax.
In addition to excise taxes, ZRA applies a uniform Value Added Tax (VAT) of 16% and Surtax of 5% across all tobacco products.Tobacco refuse has the lowest import duty at 15% while all other tobacco products have a 25% import duty.
Taxes imposed on tobacco products in Zambia for the Financial Year 2022
| Excisable Product | Units | Imports | Domestic |
| Rate in ZMW | Rate in ZMW | ||
| Tobacco Refuse | Kg | K355 per Kg or 145% of VDP whichever is higher | K88.75 per Kg or 36.25% of VDP whichever is higher |
| Cigars, cheroots, cigarillos and Cigarettes, of tobacco or tobacco substitutes | Mille | K355 | K88.75 |
| Pipe tobacco | Kg | K355 per Kg or 145% of VDP whichever is higher | K88.75 per Kg or 36.25% of VDP whichever is higher |
| Cutrag & Other tobacco products | Kg | K355 per Kg or 145% of VDP whichever is higher | K88.75 per Kg or 36.25% of VDP whichever is higher |
| Products containing tobacco, reconstituted tobacco, nicotine or nicotine products that are inhaled into the human body without combustion | Kg | 145% of VDP | 36.25% of VDP |
History of tobacco excise tax rates, inflation and GDP growth (affordability)
Table 2 below shows that the most substantial increase in the tobacco excise tax rate occurred between 2015 and 2016 when the rate more than doubled from ZMW90 per mille to ZMW200 per mille. The excise tax rate also increased by 20% from ZMW200 to ZMW240 between 2016 and 2017. Subsequent years either did not increase the excise tax rate or increased the excise tax rate below the ideal growth rate which is defined as the sum of annual inflation and GDP growth.
In 2015, Zambia adopted its tiered tax structure whereby local manufacturers of cigarettes began to pay 25% of the excise tax rate which effectively undermined the effectiveness of the tax increase.
Growth in excise tax over time compared to ideal growth
Source: Zambia Revenue Authority
Tobacconomics cigarette tax scorecard
Zambia’s overall performance relative to other African countries
With an overall score of 1.38 out of 5, Zambia scored poorly in all components of the cigarette tax scorecard except the tax structure component.
Tobacco Taxation Country Score
The lower the score, the weaker the tax structure
- Tobacco Taxation Score|
- 0 - 0.49
- 0.5 - 0.99
- 1 - 1.49
- 1.5 - 1.99
- 2 - 2.49
- 2.5 - 2.99
- 3 - 3.49
- 3.5 - 3.99
- 4 - 4.49
- 4.5 - 5
Source: Tobacconomics, 2021
The Tobacconomics Cigarette Tax Scorecard scores a country’s cigarette tax system across the following four domains: cigarette price, affordability change, tax share, and tax structure. The score ranges from 0-5, where a score of zero (0) indicates a very poor tobacco tax regime and a score of five (5) indicates a tax regime based on global best practice. In 2020, Zambia got an overall score of 1.38 out of a total of 5. Zambia’s overall score is lower compared to the average of the lower-middle-income group, African countries, and the global average. Zambia scores lower than the average of each of these groups for all components except tax structure.
Zambia’s Performance Across the Different Tax Components
The Tobacconomics Cigarette Tax Scorecard scores a country’s cigarette tax system across the following four domains: cigarette price, affordability change, tax share, and tax structure. The score ranges from 0-5, where a score of zero (0) indicates a very poor tobacco tax regime and a score of five (5) indicates a tax regime based on global best practice. In 2020, Zambia got an overall score of 1.38 out of a total of 5. Zambia’s overall score is lower compared to the average of the lower-middle-income group, African countries, and the global average. Zambia scores lower than the average of each of these groups for all components except tax structure.
Key Components of The Scorecard
Cigarette Price
- This is scored on the basis of a 20-cigarette pack of the most-sold brand in international dollars, adjusted for purchasing power parity (PPP).
- A score of zero indicates the poor performance of a country’s tax system and five indicates a strong performance by the country.
Changes in Cigarette Affordability
- This is constructed using an index of 0 to 5.
- Zero indicates increased affordability or no statistically significant change, and five indicates 7.5% average annual change or higher (a statistically significant annual change).
Tax Shares
- This is based on the average of the scores for two tax share indicators—one based on the share of all taxes in cigarette prices and the other focused on the share of excise taxes in prices.
- The highest score is the average of 70%-or-greater excise share and a 75%-or-higher total tax share.
- Tax shares should be high enough to reduce tobacco use while also allowing governments to gain revenue from the price increase.
Tax Structure
- Assesses multiple dimensions of cigarette excise tax structures.
- Zero indicates a weak tax structure and five is an effective excise tax structure that is recommended by the WHO.
Cigarette Tax Scorecard Key Components (2014-2020)
Cigarette Price (2014-2020)
Change in Affordability (2014-2020)
Share of Taxes (2014-2020)
Tax Structure (2014-2020)
Modeling the impact of cigarette taxation policy
Using the Tobacco Excise Tax Simulation Model (TETSiM)
This section is an analysis of the impact of cigarette taxation on various policy areas namely; price of cigarettes, cigarette affordability over time, the demand for tobacco products, health outcomes, and government revenue from tobacco taxes. The Tobacco Excise Tax Simulation Model (TETSiM) has been used to simulate two distinct tax policy scenarios described below. The main underlying assumption for the model is that the rate and frequency of tax adjustments for inflation and GDP growth will persist for the next five years.
Tobacco Excise Tax Simulation Model (TETSiM) Scenarios
Scenario 1 (Status Quo)
- This scenario assumes that the excise tax structure on tobacco does not change for the next five years in Zambia. This means that Zambia maintains its tiered specific excise tax on domestic and imported brands of cigarettes.
Scenario 2 ( recommended tax policy)
- This scenario assumes a gradual change in the excise tax structure on tobacco from the tiered tax structure to a uniform specific tax structure for both domestic and imported tobacco. The excise tax for domestic cigarettes will gradually converge towards that of imported brands, increasing by 45% from 2023 to 2026 and 42% by 2027.
- This scenario also assumes that the annual Net-of-tax (NOT) price increases in line with inflation.
Modeling the Impact of policy scenarios on consumption
The Zambia TETSiM model predicts that even when excise tax is increased, cigarette consumption does not drop if the current tiered tax structure persists because of the undesirable switching from less affordable brands to more affordable brands. Under this current (status quo) tax structure, the demand for cigarette sticks is projected to increase from 1.481 billion in 2022 to 1.613 billion in 2027.
The model predicts a reduction in the demand for cigarettes based on the second (recommended) scenario whereby not only is the excise tax increased, but there is a gradual conversion towards a uniform tax across imported and locally manufactured cigarettes. Under Scenario 2 (gradual shift to uniform taxes for imports and locally manufactured tobacco), the demand for cigarette sticks will reduce from 1.481 billion in 2022 to 1.314 billion by 2027. Uniform taxes will significantly increase the prices of locally manufactured cigarettes and hinder switching from premium to cheaper brands.
Impact of policy scenarios on quantity of cigarettes demanded
Source: UCT TETSiM Model Zambia 2022
Modeling the Impact of policy scenarios on affordability
Tobacco products have become more affordable in Zambia over time. Upward adjustments of excise tax have not been sufficient to compensate for both inflation and income growth. Furthermore, the increase in affordability of Tobacco products in Zambia over time can be attributed to the tiered tax system that effectively reduces the price of domestically manufactured cigarettes.
In Scenario 1 (Status Quo), the proportion of GDP per capita required to purchase 100 packs of the Most Sold Brand (MSB) will reduce from 17% in 2022 to 16% in 2027. This means that cigarettes become more affordable over time leading to an increase in the number of smokers, an increase in smoking intensity, and an increase in the prevalence of tobacco-attributable morbidity and mortality.
In Scenario 2 (Recommended), the proportion of GDP per capita required to purchase 100 packs of the MSB will increase from 17% in 2022 to 25% in 2027. This will lead to a reduction in the number of people, vulnerable youth in particular, who can afford tobacco, a reduction in smoking intensity, and a reduction in smoking-attributable morbidity and mortality significantly.
Percentage of GDP per capita required to purchase 100 packs of the most sold brand (MSB)
Source: UCT TETSiM Model Zambia 2022
Modeling the Impact of policy scenarios on health outcomes
Approximately 50% of regular smokers will die from tobacco-related diseases. Increasing taxes on tobacco products – and meeting WHO standards – can reduce tobacco-related deaths.
While smoking prevalence has dropped over time, the demand for cigarettes and other tobacco products has risen, amplified by a growing population and increased smoking intensity.An increase in excise taxes and graduation to a uniform tax structure results in higher retail prices which reduces cigarette demand. Lower demand drives down cigarette consumption and, ultimately, improves public health outcomes.
In Scenario 1 ( Status Quo), the daily smoking prevalence will increase from 7.8% in 2022 to 8.3% in 2027. This will lead to an additional 190,000 daily smokers, approximately, in five years, predominantly youth and children. The increase in smokers will significantly exacerbate the prevalence of tobacco-attributable morbidity and mortality.
In Scenario 1 (Recommended), the daily smoking prevalence will reduce from 7.8% in 2022 to 7.4% in 2027. This will lead to a reduction in the number of new daily smokers from approximately 190,000 to 80,000 between 2022 and 2027.
Change in daily smoking prevalence
Source: UCT TETSiM Model Zambia 2022
Modeling the Impact of policy scenarios on government revenue
An increase in excise taxes and graduation to a uniform specific tax structure increases government revenue while simultaneously reducing cigarette demand. An increase in excise taxes while maintaining a tiered tax structure results in an increase in tax revenues (at a lower rate than under graduation to a uniform tax structure) but no reduction in consumption in the short term.
In Scenario 1 (Status Quo), projected revenues from excise taxes and other taxes will increase from ZMW 127 million in 2022 to ZMW 497 million by 2027.
In Scenario 2 (Recommended), projected revenues from excise taxes and other taxes will increase from ZMW 127 million in 2022 to 1.36 billion by 2027. This amounts to tripling government revenues within five years while reducing tobacco consumption, and associated morbidity and mortality.
Impact of policy scenarios on excise tax revenues
Source: UCT TETSiM Model Zambia 2022
Myths and Facts
Surrounding tobacco taxation
This section lists arguments of the tobacco industry in Zambia and globally to oppose tobacco tax increases. The section also provides empirical counterarguments against mostly exaggerated tobacco industry myths.
Myth: Increasing (standardizing) tobacco taxes will lead to increased levels of illicit trade and erode anticipated government revenue gains.
Fact: Evidence shows that the impact of taxation levels and pricing of tobacco products on illicit tobacco trade is limited at the national level.
Myth: Regular/scheduled adjustments of tobacco taxes for inflation and GDP growth create an unpredictable regulatory environment and hinder the tobacco industry’s foreign direct investment.
Myth: Tobacco Industry alleges that increased tobacco taxes are retrogressive and hurt poor people by increasing the cost and share of wallet spent on tobacco and tobacco products.
Myth: The tobacco industry alleges that by increasing tobacco taxes, the government unduly interferes with personal choice by denying smokers their right to smoke.
