13 August 2016
‘The tobacco industry is complicit in illegal trade. Smuggling is one of its business strategies.’ – WHO Director-General Dr. Margaret Chan, once stated at the 16th World Conference on Tobacco or Health.
The tobacco industry claims that “Higher tobacco taxes will increase smuggling. Tax increases on tobacco products will lead to increased smuggling, illegal cigarette production and related criminal activity.”
If any other person brings in the same argument to obstruct the proposal of the President Maithripala Sirisena, submitted recently to the Cabinet, to increase tax on cigarettes at 90 percent, can we just ignore that the tobacco industry is ‘not behind this deal’?
Why this person is soft-hearted towards this multi-billion industry, when poor people are down trodden?
The truth behind this lame excuse is the following;
Tobacco taxes are not the primary reason for cigarette smuggling and cigarette tax avoidance.
A recent study of illicit trade in Europe reinforced earlier findings that factors other than price influence illicit trade.
How easy it is for smugglers to operate in a country, including the cost;
The participation of the tobacco industry;
How well crime networks are organized;
The likelihood of being caught, and the punishments, and
Many countries have significantly increased tobacco taxes without experiencing changes in smuggling/illicit productions.
Experience shows that these illegal activities can be controlled by legislative or regulatory means (e.g. use of prominent tax stamps, serial numbers, special package markings, health warning labels in local languages) and by customs and law enforcement (e.g. improving corporate auditing, better tracking systems, and good governance) and stronger penalties for violators. Revenue generated by a tax increase can finance these activities.
Higher tobacco taxes produce higher tax revenues.
The demand for tobacco products is inelastic, which means that the proportionate reduction in demand for tobacco is smaller than the proportionate size of tax increase.
So, even though demand is reduced when taxes and prices increase, the higher tax rate will result in overall increases in tax revenues.