Taxes to fund SCHIP may slow illegal cigarettes into Canada.

February 21, 2009 - For years, the major cigarette companies have regularly tried to block efforts to raise cigarette taxes by claiming that they will spark massive increases in cigarette smuggling. The cigarette tax increases that many states are instituting to balance their budgets are raising fears that the trend will make black-market smokes more profitable and lead to more cigarette smuggling.

The Canadian Council for Tobacco Control (CCTC) is calling for effective action to end the massive volume of smuggled cigarettes originating in the U.S. and entering Canada. Until now, U. S. authorities have been less enthusiastic than Canadian law enforcement agencies about cracking down on illegal factories operated by the St. Regis Tribal Council in New York State.

But this may change soon - the new U. S. government might take a very different view of the illegal tobacco industry, because President Barack Obama has just signed a new US$32.8-billion children's health insurance law that will be funded almost entirely by an increase in tobacco taxes. The State Children's Health Insurance Program (SCHIP) has committed the federal government to match state funds to provide health insurance to four million more children. The measure will be paid for by a US62¢ increase in the tax levied on each pack of cigarettes, taking the total to US$1.01 per pack.

The increase in tax is sure to make the huge U.S. market all the more attractive to the criminal groups that have concentrated almost exclusively on the lucrative Canadian market to this point. The new tax will take the price for a carton of 200 Marlboro or Newports up to US$90 in some high-tax jurisdictions such as New York City. By comparison, legal cigarettes sell for $65-$85 per carton of 200 in Canada. There is a concern that when taxes do go up, we'll be seeing the illegal cigarettes in both countries.

Reference: Tobacco tax may help clip smuggling, John Ivison, National Post, 2/10/2009.

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