Tobacco tax hike will delight smugglers, says TMA

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The Chancellor’s decision to raise tobacco taxation in the UK for the second time this year will benefit illicit trade, according to the Tobacco Manufacturers’ Association (TMA).

Christopher Ogden, chief executive of the TMA, said: “On the 1 January 2010 the Government imposed the largest tax increase on tobacco products in 10 years and now, less than three months later, taxes are to rise again. We question why HM Treasury would impose a substantial increase in such a short period, when latest HM Revenue & Customs figures show that up to 24% of the cigarette market, and 63% of the handrolling market still avoids UK duty, costing the Treasury as much as £11 million per day in lost revenue [1]. Today’s announcement will only provide further stimulus to those who seek to profit from the illicit trade in tobacco.

”The Irish Government recognised that tax increases were driving the illicit trade in tobacco and therefore chose not to raise duties at their Budget in December 2009. The Chancellor should have followed their example.”

The TMA’s concerns are supported by research from CEBR [2], which clearly shows that the Government decision will lead to an immediate increase in smuggling and associated criminality, threatening the viability of retailers and impacting on the economy as a whole. It will also undermine the positive work that the TMA and its member companies have undertaken with HMRC to combat the smuggling of both genuine and counterfeit tobacco products.

Ogden added: “In spite of this evidence, the Government are persisting with this ill-conceived tax measure, which will delight the smugglers.”

The Association of Convenience Stores(ACS) said it was disappointed at further increases in duty on alcohol and tobacco products.

Chief executive James Lowman said: “Every penny increase in duty on alcohol and tobacco harms local shops and drives more people into the illegal black market.

“The World Health Organisation acknowledges that high taxation policies like that pursued in the UK will lead to over half of the tobacco consumed here being obtained illegally and non-duty paid by the end of the decade. This means a major loss of income to the exchequer and a threat to thousands of legitimate businesses; it also means that objectives to reduce smoking in the population will be undermined. It is time for a full debate on the implications of the constant tobacco tax grab.”

[1]  HM Revenue & Customs Measuring Tax Gaps 2009 (March 2010 – Revised)

[2] Estimating the impact of a tax increase on the legal and illicit tobacco markets, Centre for Economics and Business Research ltd, October 2009