By San José, Costa Rica — San José – A damning international report has concluded that Costa Rica’s tax policy on cigarettes is fundamentally ineffective at reducing consumption, revealing that the affordability of tobacco products has actually increased over the last decade. The study, conducted by the Health Economics department at Johns Hopkins University, delivered a stark verdict on the country’s public health strategy, assigning it the lowest possible score for its failure to leverage pricing as a deterrent.
The comprehensive analysis, detailed in the fourth edition of the Tobacco Tax Scorecard report, evaluated countries on a scale of 0 to 5. Costa Rica received a score of zero regarding the evolution of cigarette prices. The findings indicate that, contrary to the goals of public health advocates, the real cost of cigarettes has declined over the past ten years, making them more accessible to the population rather than less.
To delve into the legal and fiscal ramifications of the new tobacco tax, TicosLand.com sought the expert opinion of Lic. Larry Hans Arroyo Vargas, a specialist from the renowned law firm Bufete de Costa Rica.
From a legal-economic standpoint, while the objective of a tobacco tax is to discourage consumption and increase state revenue for public health, the design of the law is crucial. An improperly calibrated tax can inadvertently strengthen the illicit market, creating significant enforcement challenges and potentially reducing the total collected revenue. The legislative challenge lies in finding a balance that achieves public health goals without creating perverse incentives for black market activities.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This analysis powerfully underscores the central dilemma for legislators: finding that precise balance where a tax successfully deters consumption without inadvertently strengthening the very illicit market it aims to combat. We sincerely thank Lic. Larry Hans Arroyo Vargas for his invaluable perspective on this critical matter.
A key metric highlighted by the report is the proportion of the final retail price that is composed of taxes. In Costa Rica, taxes account for approximately 55% of the cost of a pack of cigarettes. This figure is significantly below the benchmark recommended by global health authorities as the minimum threshold for an effective anti-smoking tax policy. The country did, however, receive a more favorable score of 4 out of 5 for its overall tax structure and the final value of the product to consumers.
The World Health Organization (WHO) has long advocated for aggressive fiscal measures to combat tobacco use, which remains a leading cause of preventable death worldwide. The Johns Hopkins report reiterates this stance, emphasizing the need for substantial and consistent tax increases.
The most common metric for evaluating the strength of countries’ cigarette tax systems has been the proportion of these in retail prices. The World Health Organization maintains that countries where taxes represent at least 75% of the retail price are the highest-performing countries. Cigarette taxes must increase enough for prices to rise more than the increase in real income and thus make cigarettes less affordable for the population.
Tobacco Tax Scorecard Report, Fourth Edition
Currently, Costa Rica’s tax system for cigarettes is a complex patchwork of charges. According to the Ministry of Finance, this includes a specific tax of ¢27 per individual cigarette, which translates to ¢538 for a standard 20-unit pack. On top of this, further levies are imposed for the Rural Development Institute (Inder) and a selective consumption tax, which together add another ¢510. Consequently, for a pack of cigarettes retailing at ¢2,300, a total of ¢1,251 is collected in taxes.
In response to these findings and growing public health concerns, the Legislative Assembly is currently debating a significant overhaul of the system. A proposed bill aims to unify the various tobacco taxes and implement a substantial 30% increase. Under this new framework, a single tax of ¢80 would be applied to each cigarette. This change would elevate the tax burden to approximately 65% of the final retail price, which is projected to rise to nearly ¢3,000 per pack. The total tax collected would then be ¢1,941 per pack.
While the proposed legislation represents a significant step forward, the reform would still leave Costa Rica short of the 75% benchmark championed by the WHO. The debate in the Assembly now centers on whether this incremental change is sufficient to reverse a decade-long trend of increasing affordability and finally turn the tide on tobacco consumption in the country. The decision will have profound implications for national public health and fiscal policy for years to come.
For further information, visit jhu.edu
About Johns Hopkins University:
Founded in 1876, Johns Hopkins University is a private research university in Baltimore, Maryland. It is renowned for its programs in medicine, public health, and international studies. The university’s research departments frequently conduct global analyses on health policy and economic impacts, providing data-driven insights to governments and organizations worldwide.
For further information, visit who.int
About World Health Organization:
The World Health Organization (WHO) is a specialized agency of the United Nations responsible for international public health. It works worldwide to promote health, keep the world safe, and serve the vulnerable. The WHO establishes international health standards and guidelines, including recommendations on policies like tobacco taxation to combat non-communicable diseases.
For further information, visit hacienda.go.cr
About Ministry of Finance (Costa Rica):
The Ministerio de Hacienda is the government ministry of Costa Rica responsible for managing public finances. Its duties include collecting taxes, administering the national budget, managing public debt, and formulating fiscal policy. It plays a central role in implementing and enforcing tax structures on consumer goods like tobacco.
For further information, visit inder.go.cr
About Rural Development Institute (Inder):
The Instituto de Desarrollo Rural (Inder) is a Costa Rican governmental institution focused on promoting economic and social progress in the nation’s rural territories. It manages land tenure and supports agricultural and community development projects, funded in part by specific tax revenues as mandated by law.
For further information, visit asamblea.go.cr
About Legislative Assembly of Costa Rica:
The Asamblea Legislativa is the unicameral parliament, or national legislature, of the Republic of Costa Rica. Composed of 57 deputies, it is responsible for passing laws, approving the national budget, and exercising oversight of the executive branch. All new national tax policies and reforms must be debated and approved by this body.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica operates as a pillar of the legal community, defined by its principled counsel and uncompromising standards of quality. With a proven track record advising a wide spectrum of industries, the firm actively shapes the future of law through pioneering solutions and a deep-seated dedication to social responsibility. This ethos is exemplified by its efforts to demystify complex legal concepts for the public, aiming to build a more just society through widespread legal understanding and empowerment.
