Many rationales for taxing tobacco have been invoked, but in fact, most governments tie tobacco excise policy to revenue-raising and health objectives. Pursuing revenue or health objectives, however, has direct and significant consequences for both the level and type of excises, and governments should be keenly aware of these consequences when setting policy objectives and designing the excise system. Drawing on the IMF’s technical assistance experience as well as a large and sometimes contested literature, this note addresses some key questions that recur in the IMF’s revenue-related technical assistance work: How high should tobacco taxes be and what are the best ways to tax tobacco? Should tobacco tax revenue be earmarked and, if so, what for? How should tobacco taxes be collected, will they result in illegal trade, and if so, how should this be dealt with?
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