1. Introduction 

Since the mid-2000s, Panama has made significant progress in controlling tobacco use, especially on non-tax measures since 2008 and on tax measures since 2009. Not only has the tax on tobacco increased, but for the first time 50% of the tax revenue has been divided between the health sector and the customs authorities, making Panama one of the few countries in the Americas to use this method of channelling resources directly to tobacco control activities. In addition, this has proved to be one of the most effective of all health initiatives[1],[2].

Between 2009 and 2014, incremental tax revenue more than doubled, from USD 12.3 million to USD 27.8 million, i.e. an average annual increase of 17.6%, while the rate of tobacco use fell from 9.4% in 2007 to 6.4% in 2013, currently the lowest recorded rate anywhere in the Americas. This demonstrates the cost-effectiveness of fiscal measures in addition to non-tax measures[3],[4].

Most of this revenue has been used to promote health and support diagnosis and tobacco cessation treatment (70% of the earmarked resources). Only 11% has been earmarked for other areas, such as capacity-building for tobacco control, strengthening surveillance and control under the WHO FCTC and strengthening national legislation[5].

The resources have been crucially important for sustained pursuit of the MPOWER package policies of the WHO, namely Monitoring tobacco use and prevention policies, Protecting people from tobacco smoke, Offering help to quit tobacco use, Warning of the damage caused by tobacco, Enforcing bans on advertising, promotion and sponsorship of tobacco products, and Raising taxes on tobacco[6],[7].

In the short term, there are plans to use another financing mechanism, in this case revenue from licences to sell tobacco products, 30% of which will go to the Ministry of Health, 30% to the Gorgas Commemorative Institute for Health Research to study NCDs associated with tobacco use and 40% to civil society organizations such as the Panamanian Coalition against Tobacco Use (30%) and the National Cancer Association (10%)[8],[9].

2. Background 

Panama has increased its selective consumption tax rates on cigarettes and other tobacco- derived products from 32.5% to 100% of the price declared by the wholesale importer. Act No. 69 of 2009 is the most recent legal instrument for apportioning financial resources to the health sector and the customs authorities, under the management of the Ministry of Health. 

The legislation specifies that 20% of the selective consumption tax shall be paid to the Ministry, 20% to the National Cancer Institute and 10% to the National Customs Authority[10].

The Ministry of the Economy and Finance collects the selective consumption tax, and the Revenue Department notifies the National Bank of the amount of the tax, which is transferred to the tobacco sub-account of the Ministry of Health account. The money is not routed through the national budget, as it is a financial account. The same procedure is followed for the National Cancer Institute and the Customs Authority[7].

As it is not part of the budget, the tax has no impact on the budget lines of any other source or entity. The money is therefore not forfeited at the end of the fiscal year. Yet it complies with all prior and post-auditing procedures of the Panamanian National Audit Office. In respect of the tobacco funds received by the Ministry of Health, a technical cooperation agreement operates with the WHO Country Office up to a transferable amount of USD 2 million for the development of tobacco control activities, endorsable by the National Audit Office. 

Each entity manages the funds it receives from the selective consumption tax, which must be spent exclusively on activities associated with tobacco use. These are various activities in line with the MPOWER package and the WHO FCTC, i.e. monitoring, protecting people from tobacco smoke, offering help to quit tobacco use, warning of the dangers of tobacco, enforcing bans on advertising, promotion and sponsorship of tobacco products, and raising taxes on tobacco[6]. A report on the authorized and planned activities for which the funds will be used is submitted annually in respect of the allocation made to each entity[5].

The activities also include research, outreach and purchase of equipment. For example, the Panama Global Adult Tobacco Survey was financed with support from Ministry of Health tobacco funds, as were regional meetings and workshops on illicit trade, taxation and prohibition of advertising, promotion and sponsorship. These resources have been the most important source of funding for activities required to comply with the WHO FCTC[11].

The money has also been used to purchase kits for monitoring tobacco smoke (SIDEPAQ) and other contaminants, e.g. products of combustion of solid wastes at refuse dumps in the metropolitan area. Vehicles have been acquired for tobacco control-related activities and provided to all Ministry of Health regional offices; they are also used for other justified health-sector activities. Likewise, spirometers have been procured to diagnose respiratory illnesses not caused by tobacco use, as is the laboratory support equipment for diagnosis of respiratory diseases not attributable to tobacco use. 

To sum up, these funds complement the resources allocated under the national health budget. This method of financing is especially recommended for developing countries such as Panama[12].

3. Process that led to adoption of Act No. 69/2009
establishing the selective consumption tax 

In 1995, under the leadership of the Ministry of Health, the first steps were taken to increase taxation on tobacco and to use the revenue to fund the health sector. In that year, the selected consumption tax was fixed at 32.5% of the price declared by the wholesale importer[13]  .In 2001, value-added tax (VAT) was increased from 10% to 15%, and 5% was earmarked for the National Cancer Institute[14]. In 2004, Panama ratified the WHO FCTC, and this was used as justification for increasing the selective consumption tax to 100% in 2009, in keeping with the recommendations of the MPOWER initiative[10],[15].

The arguments for setting a threshold of 50% of the selective consumption tax are contained in Act No. 40 of 2004 and Act No. 13 of 2008, which impose upon the Ministry of Health a series of tasks, including control of smuggling. As far as the Ministry of Health is concerned, these are commitments under the WHO FCTC. For the National Customs Authority, Article 15 of the WHO FCTC imposes monitoring and control of illicit trade, for which resources are required. Funds were allocated to the National Cancer Institute because the treatment of diseases as- sociated with tobacco use (such as cancer) is expensive, and treatment costs can be reduced by limiting the impact of tobacco use11. 

Strategic partnerships between the Ministry of Health, the National Assembly, the Ministry of Economy and Finance and civil society organizations such as the Panamanian Anti-smoking Coalition, the National Cancer Association and Fundácancer were crucially important in bringing about the increase in the selective consumption tax. A media communications plan was prepared to react to attacks by the tobacco industry, especially with regard to smuggling. The anti-tobacco tactics include free radio and television spots, interviews, dissemination of evidence to journalists sympathetic to tobacco control, organizing forums for journalists and developing a media relations guide in cooperation with the most representative, credible civil society groups. The support of Government and opposition lawmakers has been a key factor in ensuring political balance in negotiation of the tax[16].

Hard data are also important: a study of the demand for tobacco in Panama between 2009 and 2012 demonstrated that, by increasing the selective consumption tax, fiscal revenue would increase and prevalence would decrease[17],[18]. This evidence was key in allaying the concerns of the Ministry of Economy and Finance that the revenue stream from the selective consumption tax might decrease. The tax was initially increased to 50% in September 2009 and subsequently to 100% in November the same year, because it was considered that the tax receipts were not at all commensurate with the hospital costs occasioned by tobacco-related diseases. This argument played well with the National Assembly[10].

Some of the main factors in getting the law adopted were: convincing the Ministry of Economy and Finance by technical studies and ad hoc meetings at the highest level (Deputy Minister and revenue director), strategic lobbying of lawmakers on the Board of Trade before the first 

reading, targeted action by civil society stakeholders in the media and garnering the support of sympathetic journalists. Another important factor was the political situation and the tax reform of 2010, whereby the Government in power sought higher taxes to finance subsidy programmes and infrastructure projects, by increasing VAT from 5% to 7% for example. The year 2009, the government’s first year in power, was therefore the right time to propose a further increase in the selective consumption tax. 

4. Collection of the selective consumption tax and use of the revenue 

After entry into force of the WHO FCTC, revenue from the selective consumption tax began to increase significantly. This occurred well before November 2009, when the rate of 100% was introduced. Since 2010, receipts have continued to increase, as borne out by the findings of the studies of tobacco demand in 2009 and 2012 (see Fig. 1)[5],[18]. Likewise, in view of the increase in per capita income, the affordability criterion is still significant. Between 2009 and 2014, the average rate of increase in per capita GDP was 6.5%, which suggests that selective consumption tax revenue will continue to grow in the longer term, Panama being one of the most thriving economies in the region[19],[20].

Fig. 1. Annual selective consumption tax (ISC) revenue in USD 

Source:  Revenue Department. 

In accordance with the earmarking scheme specified in Act No. 69, of the total revenue of USD 59 401 644.05 in the period 2009–2014, the Ministry of Health was allocated USD 23 638 254.30, the National Cancer Association USD 23 638 254.30 and the National Customs Authority USD 12 125 135.45. Under the MPOWER work, the Ministry of Health as the regulatory body is responsible for using the funds to promote tobacco control policies; Fig. 2 and Table 1 show the breakdown of the figures. 

Fig. 2 shows how the selective consumption tax receipts are distributed; the most significant expenditure items are health promotion (20.1%), support for diagnosis at primary health care level (30.9%), smoking cessation treatment and the treatment of chronic diseases (19%). These represent 70% of the total expenditure. The second tier of activities includes strengthening monitoring and control functions under the WHO FCTC and national legislation (9.1%) and hiring staff to carry out these functions (8.2%). International cooperation as called for under the WHO FCTC accounts for 6.1%, diagnostic support by laboratories for 4.9% and capacity- building for 1.7%. 

Fig. 2. Allocation (%) of earmarked funds from selective consumption tax revenue, 2010–2013 

Source: National Commission for the Study of Tobacco Use in Panama, Ministry of Health 

Table 1 gives a breakdown of the specific areas in which investments have been made, with 75% for procuring equipment for treating outpatients (item 1), mobile equipment to monitor environmental health (items 2 and 3) and IT equipment to support tobacco inspections (item 5). 

Table 1. Expenditure, Ministry of Health tobacco funds, 2015 

Source: National Commission for the Study of Tobacco Use in Panama, Ministry of Health 

The money has been spent mainly on tobacco control equipment and capacity-building, and the information system for monitoring NCDs received 6% of the funds directly. 

Table 2 shows the annual breakdown of expenditure of the funds allocated to the National Cancer Institute, a total of USD 14 227 642.60 in 2015. The money was used to maintain facilities and treat cancer patients. Funding has increased by about 30% every year.  

Table 2. Expenditure, National Cancer Institute tobacco fund, cumulative total 2015 

Source: National Cancer Institute 

Before the advent of selective consumption tax revenues, no money was allocated for tobacco control activities at the Ministry of Health, the National Cancer Institute or the National Customs Authority. All these entities have played a part in implementing the MPOWER policies (although the National Customs Authority did not provide data, despite a formal request on 11 June 2015). Part of the funds are decentralized to the Ministry of Health regions, to train health workers and establish health promotion and activities to reduce chronic NCDs. The Ministry of Health is strengthening surveillance and enforcement of control measures, research, and treatment and smoking cessation campaigns, among other projects. Since 2012, international and regional cooperation has been stepped up, in addition to cooperation with the WHO FCTC secretariat to implement international agreements on tobacco control and reduction of chronic diseases associated with tobacco use; a cumulative total of USD 2 million has been spent in this area. To date, USD 1.6 million has been spent on national or regional tobacco control activities to comply with WHO FCTC or Act No. 13 and its objectives. The remaining USD 400 000 will be allocated to activities for chronic diseases. All expenditure is reviewed in accordance with guidelines of the Regional Office for the Americas and subsequently audited by the National Audit Office. Of the total of USD 2 million, USD 1.4 million has already been transferred and USD 600 000 is pending transfer[8].

In the period since 2010, a total of USD 23 130 479.42 has been received, and an outstanding amount of USD 157 053.63 has still to be executed. The funds are made available as the selective consumption tax is collected and earmarked for each body as established by law. 

5. Impact of the selective consumption tax on tobacco control 

The impact of the selective consumption tax was documented by a study on tobacco demand in Panama between 2009 and 2012, which shows that increasing the tax rate to 100% doubled tax receipts while reducing prevalence. The National Health and Quality of Life Survey conducted in 2007 indicated a prevalence rate of 9.4%, while the Global Adult Tobacco Survey conducted in 2013 gave a prevalence rate of 6.4% (smoked and non-smoked tobacco), the lowest rate thus far recorded in the Americas. Data from the Global Youth Tobacco Surveys of 2002, 2008 and 2012 indicate tobacco use prevalence rates of 18.3%, 8.3% and 9.5%, respectively, although these findings reflect tobacco use among young people before the introduction of new products such as electronic cigarettes[21],[22],[23]. These findings are borne out by public health research, which shows, for example, a reduction in the relative risk for acute myocardial infarction and a decrease in mortality due to diseases associated with tobacco use from 16.4% in 2005 to 12.1% in 2012[1],[24].

Moreover, the evidence shows that the increase in the selective consumption tax reduced affordability and had a regulating effect on smuggling. Faced with the falling prevalence rate, the tobacco industry adapted its tactics by distributing its legal and illegal brands in both segments. This did not, however, expand the market, as both legal and illegal brands of tobacco have become more expensive. This indicates the cost-effectiveness of the increase in the selective consumption tax[17],[18],[25],[26].

Further increases in the selective consumption tax should be envisaged, given that it is a continuous mechanism for making financial resources available to offset the negative aspects of tobacco use. 

6. New tax policy initiatives and challenges 

Since 2015, initiatives have been launched to channel resources from other taxes to the health sector; the most significant are contained in draft acts No. 176 and No. 136. The principal initiatives are the criminalization of illicit trade in tobacco, licensing the sale of tobacco products and introducing plain packaging, subject to ratification of the WHO FCTC Protocol to Eliminate Illicit Trade in Tobacco Products[8],[9],[15].

The revenue derived from special licensing taxes and fines will be distributed as follows: 

·     30% will be earmarked for the Ministry of Health via the tobacco focal point, for surveillance and monitoring of implementation of the WHO FCTC and enforcing the provisions of Act No. 13 of 13 August 2008. 

·     30% will be earmarked for the Panamanian Anti-smoking Coalition, for prevention, education, promotion and monitoring of its objectives at national level. 

·     30% will be earmarked for the Gorgas Commemorative Institute to conduct research on tobacco use and associated NCDs.

·     10% will be earmarked for the National Cancer Association to support prevention, promotion and stop smoking programmes.

This initiative seeks to impose tighter control on illicit trade and make resources available not only to the public health sector but also to civil society, with a view to strengthening its role[8],[9].

There remains, however, institutional resistance in some quarters, such as the National Customs Authority, which has not yet made use of the earmarked resources from the selective consumption tax, and lack of leadership in the fight against illicit trade in tobacco products, for example in the Panamanian Board of Trade and Industry, which on occasion unintentionally adopts positions favourable to the tobacco industry[27].

The lack of a comprehensive policy on the use of tobacco products continues to be the main stumbling block in areas such as consumer protection, trademark registration, international trade treaties and criminal law, because these matters give rise to regulatory conflicts and require harmonization of health standards, thus leaving the tobacco industry considerable room for manoeuvre as it takes advantage of institutional failings. 

7. Conclusions 

Panama is one of the few countries in the region that uses tobacco tax revenue to fund the MPOWER policies derived from articles of the WHO FCTC. This is the principal source of funding for all activities to control tobacco use, including national contributions to international cooperation. 

The funds are used mainly for health promotion, diagnostic support at the primary health care level and smoking cessation treatment. Specifically, the money is used to procure biomedical 

equipment, vehicles for monitoring and computer equipment to carry out inspections in the 14 health regions under the Ministry of Health, the authority that oversees tobacco control policy in Panama. 

The impact of the tax on fiscal receipts and health has been tracked. The public sector (health and customs) received USD 59 401 644.05 between 2009 and 2014 following the increase in the basic rate of the selective consumption tax from 32.5% to 100% and the subsequent doubling of tax revenue. There has since been a reduction in the prevalence rate of tobacco use to 6.4%. 

These findings demonstrate that the increase in the selective consumption tax has been cost- effective. Affordability has been increasing along with per capita income increases; therefore, further tax increases should be considered to ensure the complementarity of fiscal and non-fiscal measures[17],[18],[25]. Tax increases are a continuous process ; therefore, indexation with the general rate of inflation is recommended[28] to ensure that the health sector continues to receive financial resources and can therefore pursue the MPOWER initiative and activities to control NCDs in the long term. Increases in the selective consumption tax continue to be one of the principal strategic considerations for the future. Given the current problems facing the national budget, channelling tax revenues to the health sector is extremely important. 

Another important consideration is the need to make of the MPOWER package and the normative tools that support it a complementary instrument that operates in tandem with other legal provisions, such as for a trademarks registry, consumer protection and control of illicit trade. There is still considerable institutional resistance to implementation of various aspects of the WHO FCTC; consequently, greater efforts must be made in convergence, by supplying data on our progress, and awareness-raising in order to launch new tobacco control initiatives, as they will require strategic political partnerships. These will include Government bodies such as the Ministry of Trade and Industry, the National Assembly, the Ministry of Health, the National Customs Authority, the Ministry of Government and Justice and the Consumer Protection and Defence of Competition Authority and civil society associations such as the Panamanian Anti-smoking Coalition and the National Cancer Association, the most important stakeholders at local level, as well as partnerships with international scientific and technical bodies. 

A significant problem for the author of this article was the difficulty in obtaining complete, standardized data, especially from the National Cancer Institute and from the National Customs Authority. It was therefore difficult to assess the overall impact of the tax as a complement to health budgets. This kind of information should be systematically approved for release to allow construction of baseline indicators for determining the scope and effectiveness of selective consumption tax revenues in implementing the WHO FCTC. 


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[4] Ahsan A. Tobacco excise policy in Indonesia: bringing the health objectives back in. Resp Med 2013;107:S12. 

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[7] MPOWER. Geneva: World Health Organization, Tobacco Free Initiative; 2015 (http:// 

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[9] Proyecto de ley 176. Que modificay adiciona artículos del código penal, código judicial y dicta otras disposiciones [Draft law No. 176 amending and supplementing articles of the Criminal Code, the Judicial Code and establishing other provisions]. Panama City: Asambleá Nacional de Panamá; 2015. 

[10] Ley No. 69 de 6 de Noviembre de 2009. Que prohibie la equiparación en los contratos y otras modalidades juridicas en que el Estado sea parte [Law No. 69 of 6 November 2009. Which prohibits equalization of contracts and other legal terms and conditions to which the State is party] (26402-C). Gaceta Oficial 2009: 15 (v1.panamacompra.gob. pa/documentosconvertidos/2159-01.pdf ). 

[11] Ley No. 40 de 2004, Aprobación del Convenio Marco de la OMS para el control del tabaco [Approval of the WHO Framework Convention on Tobacco Control]. Gaceta Oficial 2004:29. 

[12] Sáenz de Miera Juárez B, Guerrero Lopez CM, Zúñiga Ramiro J, Ruiz Velasco Acosta S. Impuestos al tabaco y políticas para el control del tabaco en Brasil, México y Uruguay. Resultados para México [Tobacco taxes and tobacco control policies in Brazil, Mexico and Uruguay. Results for Mexico]. Mexico City: Fundación Interamericana del Corazón; 2013:41. 

[13] Ley 45 que deroga los titulos vi y xxi del libro cuarto del codigo fiscal, los decretos de gabinete 35 de 1970 y 22 de 1972, se modifican y derogan otras disposiciones, crea impuesto selectivo al consumo de bebidas gaseosas, alcoholicas y cigarrillos [Act 45 on waiving titles VI and XXI of Book four of the Tax Code, Cabinet decrees 35/1970 and 22/1972, amending and waiving other provisions, and establishing a selective consumption tax on carbonated and alcoholic beverages and cigarettes]. Gaceta Oficial 1995;22911:26. 

[14] Ley 28, que modifica el paragrafo 6 del articulo 1057-v del codigo fiscal sobre el impuesto al cigarrillo, el articulo 24 de la ley 30 de 1984 sobre contrabando y defraudacion aduanera, y dicta otras disposiciones [Act 28 amending article 1057-v, paragraph 6, of the Tax Code on the taxation of cigarettes, article 24 of Act 30 of 1984 on smuggling and customs fraud, and establishing other provisions]. Gaceta Oficial 2001;24334:8. 

[15] Protocol to eliminate illicit trade in tobacco products. Geneva: World Health Organization; 2013 ( bitstream/10665/80881/1/9789243505244_spa.pdf?ua=1). 

[16] Polémica por impuesto a los cigarrillos [Controversy over cigarette tax]. La Estrella de Panamá, 15 September 2009 ( polemica-impuesto-cigarillos/23750399). 

[17] Ballesteros VHH. La demanda de cigarrillos en Panamá [Demand for cigarillos in Panama]. Panama City: Centro de Investigación para la Epidemia del Tabaquismo; 2010:33–43 ( estudio_de_la_demanda_de_tabaco_ciet-panama-abril-2010.pdf ). 

[18] Herrera Ballesteros VH. Análisis de la demanda de tabaco en Panamá y el control del efecto asequibilidad con medidas fiscales y control del contrabando : implicaciones para Política Fiscal, 2000–2011 [Analysis of the demand for tobacco in Panama and regulation of affordability through tax measures and control of smuggling: implications for fiscal policy 2010–2011]. Panama City: Instituto Conmemorativo Gorgas de Estudios de la Salud; 2013 (

[19] Producto interno bruto a precios de comprador de 2007, total y per cápita en la república, y sus variaciones porcentuales anuales: años 2007–2014 [2007 purchasing price, total and per capita GDP of Panama and annual percentage variations 2007–2014]. Panama City: Instituto Nacional de Estadistica y Censo; 2014 ( SUBCATEGORIA=26&ID_PUBLICACION=663&ID_IDIOMA=1&ID_CATEGORIA=4). 

[20] Statistical yearbook for Latin America and the Caribbean 2014. Santiago: Economic Commission for Latin America and the Caribbean; 2014 ( bitstream/handle/11362/37647/S1420569_mu.pdf?sequence=1). 

[21] Centers for Disease Control and Prevention. Panama Global Youth Tobacco Survey 2002. Seattle, Washington: Institute for Health Metrics and Evaluation; 2002. 

[22] Centers for Disease Control and Prevention. Panama Global Youth Tobacco Survey 2004. Seattle, Washington: Institute for Health Metrics and Evaluation; 2004. 

[23] Centers for Disease Control and Prevention. Panama Global Youth Tobacco Survey 2012. Seattle, Washington: Institute for Health Metrics and Evaluation; 2012. 

[24] Estadísticas vitales. 2012 [Vital statistics. 2012]. Panama City: Instituto Nacional de Estadistica y Censo; 2013 ( subcategoria.aspx?ID_CATEGORIA=3&ID_SUBCATEGORIA=7&ID_IDIOMA=1. 

[25] Guindon GE, Paraje GR, Chaloupka FJ. The impact of prices and taxes on the use of tobacco products in Latin America and the Caribbean. Am J Public Health 2015;105:e9–e19. 

[26] Encuesta de marcas de cigarrillos [Cigarette brands survey]. Panama City: Instituto Conmemorativo Gorgas de Estudios de la Salud; 2012:29. 

[27] Grosso NP. Panamá, el país con menos fumadores de Latinoamérica [Panama, the country with the fewest smokers in Latin America]. Prensa Latina, May 2015.

[28] Mares MA. Indexar a inflación impuesto antitabaco [Indexing tobacco tax to inflation]. El Economista, 18 October 2011. 

Related report

World Health Organization. (2016). Earmarked tobacco taxes: lessons learnt from nine countries. Geneva, World Health Organization.

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