Prices, taxes and smuggling
"Sugar, rum, and tobacco, are commodities which are no where necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation…"
Adam Smith
An Inquiry into the Nature and Causes of The Wealth of Nations
Evidence from countries of all income levels shows that price increases on cigarettes are highly effective in reducing demand. Higher taxes induce some smokers to quit and prevent others individuals from starting. They also reduce the number of ex-users who return to tobacco and reduce consumption among continuing users. On average, a price rise of 10 percent on a pack of cigarettes would be expected to reduce demand for cigarettes by about 4 percent in high-income countries and by about 8 percent in low- and middle-income countries, where lower incomes tend to make people more responsive to price changes. Children and adolescents are more responsive to price rises than older adults, so this intervention would have a significant impact on them.
Tobacco taxes still not high enough to save lives, says WHO (WHO/2002/11)
27 February 2002
Trends and Affordability of Cigarette Prices: Ample Room for Tax Increases and Related Health Gains. Tobacco Control 2002 Volume 11 Number 1.
The World Bank Report
Raising Cigarette Taxes
Tobacco companies involved price fixing - The Economist
July 2001: The Economist magazine reveals large scale price fixing activity among BAT and its rivals Philip Morris and RJ Reynolds.
Government Revenue
It is often believed that higher tax rates will reduce government revenues. In fact, the empirical evidence shows that raised tobacco taxes bring greater tobacco tax revenues. This is in part because the proportionate reduction in demand does not match the proportionate size of the tax increase, since addicted consumers respond relatively slowly to price rises.
The World Bank Report
Will higher tobacco taxes reduce government revenue?
Smuggling
Action against smuggling is key to an effective strategy for tobacco control. Effective measures include prominent tax stamps and local-language warnings on cigarette packs, as well as the aggressive enforcement and consistent application of tough penalties to deter smugglers. Tight controls on smuggling improve governments' revenue yields from tobacco tax increases.
Discrepancies in tobacco prices between countries, it is argued, creates an incentive to smuggle. However, the determinants of smuggling are much more than price alone. Using standard indicators of corruption levels based on Transparency International's Index of Countries, the World Bank concluded that, with notable exceptions, the level of tobacco smuggling tends to rise in line with the degree of corruption in a country.
The World Bank Report
Firm action on smuggling
The BAT story
In February 2000, the Guardian and the International Consortium of Investigative Journalists published revelations about cigarette giant BAT's involvement with smuggled products. The findings, were released more or less simultaneously through sympathetic media outlets in Europe, Australia, North America and South America. In the course of the investigation, more than 11,000 pages of documents from BAT and its subsidiaries, including the U.S. company Brown & Williamson, were analyzed.
The Center for Public Integrity
Major Tobacco Multinational Implicated In Cigarette Smuggling, Tax Evasion, Documents Show
The Guardian
In-depth report: BAT exposé
Campaign for Tobacco-Free Kids
Illegal Pathways to Illegal Profits: The Big Cigarette Companies and International Smuggling [PDF] (April 2001)
The Canadian Experience
Cigarette Smuggling -- Myths and Realities [PDF] (Oct. 1999)
Non-Smokers' Rights Association –Canada (NSRA)