Plans to reduce cigarette prices: Strong evidence pointing to a misguided move

Concerns are growing following indications that the government is considering a policy shift, or a "U-turn," on tobacco control measures, just one year after implementing some of the most stringent laws in Maldivian history. This development represents another critical opportunity to reflect on policymaking, implementation, and long-term sustainability.

Speaking at a press conference held last Monday to commemorate World No Tobacco Day, Home Minister Ali Ihusaan stated that the government is reviewing a proposal to reduce the customs duty imposed on a cigarette from MVR 8 to MVR 4. According to Ihusan, the change had been recommended by the World Health Organization (WHO).

However, the WHO has yet to make any official public statement regarding the matter.

At the press conference, which was also attended by the Health Minister, Ihusan detailed that the government is considering a decision that would effectively reduce the current retail price of cigarettes by 50 percent.

In 2024, President Dr. Mohamed Muizzu’s administration adopted aggressive anti-tobacco measures. These included a nationwide ban on vaping and an increase in the import duty on a a cigarette from MVR 3.50 to MVR 8. As a result, the price of a packet of cigarettes, which had previously been MVR 110, rose sharply between MVR 240 and MVR 250.

However, when the government abruptly implemented this significant policy change, several necessary supporting measures were not properly implemented. This led to a surge in illicit trade. Government officials maintain that the sudden price increase created opportunities for smugglers to import cigarettes illegally. According to statistics from Maldives Customs, the volume of legally imported tobacco products declined dramatically during the first seven months of 2025. Some estimates suggest that revenue from legally imported tobacco products fell by 95 percent compared to collections prior to the tax increase.

The government’s current consideration of reversing a policy it once pursued so decisively is likely influenced by this substantial loss of revenue. Pressure from business interests and other potential financial considerations may also be contributing factors. Furthermore, such a move could be intended to generate political support, particularly in light of the need to ease public pressure ahead of the presidential election.

Supporters of reducing the duty to MVR 4 contend that the change would reduce black-market profits, increase legal imports, and help recover lost government revenue.

The Economic Reality: Price Inelasticity

International experience demonstrates that the relationship between taxation, illicit trade, and public health is highly complex. The justification for high tobacco taxes is supported by extensive economic and public health research. Unlike many other commonly consumed products, demand for tobacco is relatively insensitive to price changes, making it "price inelastic." This means that although consumption declines as prices increase, the reduction is not proportional to the magnitude of the price rise. International studies estimate the price elasticity of demand for tobacco at approximately -0.4. In practical terms, a 10 percent increase in cigarette prices results in only about a 4 percent decline in consumption.

The World Health Organization and the World Bank have consistently emphasized that increasing taxes is the most effective strategy for reducing tobacco consumption.

Impact on Youth

Price increases have the greatest positive impact on young people. In general, young individuals with lower incomes are compelled either to quit smoking or postpone initiating the habit when cigarette prices rise substantially. Public health researchers note that one of the strongest arguments for maintaining high tobacco taxes is the protection of youth from the harms of tobacco use. While adults often continue purchasing cigarettes despite rising prices due to nicotine dependence, young people are considerably more responsive to price fluctuations.

Studies conducted across various countries show that teenagers and young adults are the demographic most affected by changes in tobacco prices. Consequently, health experts warn that if cigarette prices are reduced in the Maldives, smoking rates among teenagers and young adults could increase significantly, potentially creating major public health challenges for decades to come.

The Bitter Lesson Canada Learned from Similar Actions

One of the most prominent examples illustrating the consequences of reducing tobacco taxes is Canada’s policy shift in 1994. During the late 1980s and early 1990s, Canada successfully lowered smoking rates through substantial increases in tobacco taxes. However, as cigarette prices rose, black-market activity expanded across the US border. Similar to the current situation in the Maldives, illicit cigarettes became increasingly prevalent in the market. Faced with mounting pressure from declining revenue and a growing black market, the Canadian federal government significantly reduced cigarette taxes in February 1994. Several provinces subsequently followed suit, resulting in cigarette prices falling by as much as 50 percent in certain regions.

Researchers later concluded that the tax reduction inflicted significant harm on public health. Studies examining smoking patterns after the tax cut found that lower prices contributed to a substantial increase in smoking among young people. National survey data indicated that the tax reductions led to an additional 190,000 young Canadians becoming daily smokers.

Research Insight: Studies conducted in Canada during that period showed that for every one percent drop in the price of cigarettes, youth tobacco consumption increased by approximately one percent. The long-term consequence was that Canada had to spend billions of dollars treating tobacco-related illnesses such as cancer, heart disease, and respiratory illnesses.

Enforcement vs Tax Cuts

Maldivian government officials who support the proposed tax reduction argue that its primary objective is to curb black-market activity rather than increase smoking rates. However, many economists contend that the black-market problem is fundamentally an issue of law enforcement rather than taxation.

The WHO Framework Convention on Tobacco Control (FCTC) emphasizes the importance of strengthening border security, enhancing customs surveillance, implementing track-and-trace systems, and imposing stricter penalties on illicit traders to combat the illegal tobacco trade. Countries such as Australia, New Zealand, and the United Kingdom have successfully minimized black-market activity while maintaining high tobacco taxes by simultaneously strengthening their enforcement frameworks.

Public health experts caution that reducing taxes to compete with black-market operators establishes a dangerous precedent. Such an approach effectively compels governments to modify national policy in response to criminal activity, thereby encouraging lawbreakers. Even if legal imports increase as a result of the tax reduction, the amount of tax revenue collected per cigarette would decline significantly. At the same time, lower retail prices are likely to increase tobacco consumption, particularly among youth and lower-income groups.

The ongoing discussions initiated by the Maldivian government have triggered a significant debate regarding the future of tobacco control in the Maldives. Supporters of the duty reduction regard it as a practical response to the growing black market and declining customs revenue. Critics, however, view it as a retreat from evidence-based public health policy.

International experience demonstrates that countries which reduce tobacco taxes to address black-market concerns often experience higher smoking rates and increased healthcare costs over the long term. As the government continues to consider reducing the duty on cigarettes from MVR 8 to MVR 4, the decision on whether to submit the required legislative amendments to the Parliament remains pending.