Many governments use tax hikes to try to stop people smoking
Do sudden and steep increases in tobacco excise taxes - a swingeing 200 per cent in one case - really cause smokers to quit in their droves or to cut down drastically?
The plain answer is no. There is evidence to show that while some smokers are encouraged to stop or smoke less, punitive tax rises do not result in proportionate reductions in cigarette consumption.
Most national governments are parties to the World Health Organisation’s Framework Convention on Tobacco Control which requires them to use tax or price policies to cut tobacco consumption.
However, data show rapidly rising tobacco taxes are likely to drive many smokers to find cheaper, often illegal (untaxed counterfeit and smuggled) alternatives to their usual brands.
Illicit trade accounts for an ever increasing proportion of the tobacco market in a growing number of countries – over a quarter across Romania, Ireland and Malaysia and 50 per cent in Hong Kong, for example.
In March 2011, Deloitte published a report into the 'Illicit trade of tobacco in Australia' . The report, which was jointly commissioned by the tobacco industry in Australia, estimated that in 2010 illicit trade cost the government around $1.1 billion in lost excise revenue. Since 2007, the tobacco black market had grown from 6.4 per cent to 15.9 per cent of the tobacco sold in the country. The largest annual increase during that period occurred in 2010, the same year as an increase in excise of 25 per cent.
Of course, black market cigarette sellers are unlikely to adhere to laws about not selling to the under age and this worries everyone, bar the criminals.
However, governments are becoming more aware of the consequences high taxes can have. Ireland has the highest excise duty on cigarettes in Europe and illicit trade now accounts for an estimated 27% of the tobacco market there. In 2010 the Irish Finance Minister admitted that the high taxes were contributing to a “very serious criminal problem” and froze duty for the second year running.
Read more about illicit trade.
What we believe
We’re not against increases in tobacco taxes.
Manageable increments, typically in line with inflation, make the most sense: governments are less likely to inadvertently fuel illicit trade and tax revenues are more predictable.
For people wanting to stop smoking, the keys are motivation and self-belief. We don’t build our business on persuading people to smoke or trying to stop people from quitting. We believe that if you want to quit, you should.
Read our cases studies