In the complex arena of global public health and fiscal policy, the World Health Organization (WHO) has long championed a singular, rigid benchmark: that excise taxes should account for at least 75 percent of the final retail price of tobacco products. While the goal—reducing consumption to improve health outcomes—is noble, economists and tax policy experts increasingly argue that this target is built on a fundamental misunderstanding of how tax systems function. By prioritizing an arbitrary percentage of retail price over direct, absolute tax rates, the WHO risks promoting policies that are not only inefficient but potentially counterproductive to both government revenue and public health goals.
The Core Disconnect: Incidence vs. Burden
At the heart of the debate is a technical but critical distinction: the difference between tax incidence and tax burden. Tax incidence, as defined by the WHO, is the share of the retail price represented by taxes. However, retail price is a volatile metric influenced by a host of variables beyond the reach of fiscal policy, including manufacturing costs, supply chain logistics, marketing strategies, and local competition.
When the WHO sets a 75 percent target for tax incidence, it ignores the fact that a 75 percent share of a €2 product is economically disparate from a 75 percent share of a €20 product. Consumers experience economic pressure in absolute currency terms—the actual money leaving their wallets—not as a percentage of a retail price tag. Similarly, governments require stable, predictable revenue streams, which are best achieved through fixed, ad quantum tax rates (a set amount of currency per unit).
By tethering policy to a percentage of the retail price, the WHO creates a target that shifts whenever market conditions change. This renders the metric an unreliable barometer for the actual fiscal impact of a tax policy.
A Chronology of a Misguided Benchmark
The WHO’s advocacy for high tax incidence has roots in the desire for a "one-size-fits-all" solution to global smoking rates. Over the past two decades, the organization has consistently pushed for the 75 percent threshold as part of its broader Framework Convention on Tobacco Control (FCTC).
- Early 2000s: The WHO begins to formalize its guidance, pushing for higher tobacco taxes to curb consumption.
- The Technical Manual Phase: The WHO releases its "Technical Manual on Tobacco Tax Administration," which cements the 75 percent incidence target as a primary recommendation for member states.
- Persistent Discrepancies: Despite decades of advocacy, the WHO’s own data reveals that the target remains elusive. As of the most recent reporting, only 22 percent of the 178 countries surveyed have managed to hit this mark.
- 2025 Realities: Recent data from the European Union shows that even in countries with the highest tax rates—such as France and Ireland—the target has failed to produce the intended drop in smoking prevalence, instead creating massive incentives for illicit trade.
Supporting Data: Why the Target Fails the Global Test
The WHO’s recommendation assumes that high tax incidence is a universal solution, yet the data suggests a starkly different reality. Of the 39 countries currently meeting the 75 percent threshold, the vast majority are high-income nations, with 20 located within the European Union. This reveals a clear bias toward developed economies, where the administrative capacity to enforce taxes and the economic elasticity of consumers differ drastically from those in emerging markets.
Furthermore, there is no direct correlation between reaching this 75 percent target and successfully curbing tobacco consumption. Consider the case of Ireland: despite maintaining the highest cigarette taxes in the European Union, the country failed to meet its target of reducing smoking rates to 5 percent by 2025. Instead, rates stagnated at roughly 17 percent. This indicates that price-based targets are insufficient when disconnected from the broader socio-economic reality of the consumer.
The Illicit Trade: The Shadow Economy of High Taxes
Perhaps the most damaging consequence of the WHO’s focus on high tax incidence is the unintended stimulation of the illicit market. When governments push taxes to extreme levels, they create a massive price gap between legal products and black-market alternatives.
The 2025 KPMG report on illicit cigarette consumption in the EU paints a grim picture: over 10 percent of cigarettes consumed in the Union are counterfeit or contraband. This translates to roughly 42 billion cigarettes and a staggering €16.7 billion in lost tax revenue.
This is not a coincidence; it is a predictable economic response. In countries like France and Ireland, where tax rates are among the highest in the world, more than one-third of cigarettes consumed are estimated to be non-domestic or illicit. Research consistently shows that for every additional euro added to the tax on a pack of 20 cigarettes in the EU, illicit trade increases by approximately 7 percent. By pursuing a percentage target that ignores the elasticity of the local market, the WHO is essentially handing market share to criminal syndicates.
Implications for Future Policy
The reliance on tax incidence as a primary policy lever has significant implications for how nations should approach excise tax reform. If the goal is to reduce harmful consumption and generate revenue, policymakers must pivot away from the WHO’s arbitrary benchmarks and toward evidence-based strategies.
1. The Superiority of Ad Quantum Taxes
Instead of targeting a share of the retail price, governments should prioritize ad quantum taxes—a specific, stable tax rate in local currency. This provides a predictable revenue stream and allows for better long-term fiscal planning. It also removes the distortion caused by fluctuating manufacturing and distribution costs, ensuring that the tax burden remains consistent for the consumer.
2. Recognizing the Regressive Nature of Tobacco Taxes
Policymakers must acknowledge that high excise taxes on products like tobacco fall disproportionately on lower-income households. When these taxes are layered onto an already strained budget—facing inflation in housing, food, and energy—they can exacerbate financial hardship without necessarily achieving the intended health outcomes. A more nuanced approach would account for the socio-economic context of the population, rather than applying a blanket, high-incidence target.
3. Regulatory Accountability
Illicit markets do more than just rob the state of revenue; they bypass all regulatory and safety standards. Products sold on the black market contain unknown ingredients, are often sold to minors without verification, and provide no legal recourse for consumers. By creating a fiscal environment that makes illicit trade highly profitable, the WHO’s recommended tax strategy inadvertently undermines the very health and safety regulations it seeks to protect.
Conclusion: A Call for Evidence-Based Reform
The WHO’s 75 percent tax incidence target is a relic of a simpler, but flawed, ideological approach to taxation. It prioritizes a number that looks good on a spreadsheet over the complex, ground-level reality of global markets.
True success in tax policy—whether for tobacco or other excise goods—requires an understanding of behavioral economics, local enforcement capabilities, and the inherent risks of driving consumers toward illicit, unregulated alternatives. Rather than chasing a global benchmark that is statistically unrepresentative and fiscally dangerous, policymakers should focus on setting clear, ad quantum tax rates that align with their domestic economic and public health objectives.
The path forward requires moving beyond ideological targets and embracing a data-driven approach that respects the limits of tax policy. Only by doing so can governments protect their tax bases, support public health, and combat the rise of the illicit trade that currently thrives on the failures of overly simplistic, high-tax mandates.
