United Kingdom - JTI believes tobacco tax increase lead to moretobacco smuggling..

March 28, 2010 - Smokers will pay more for their cigarettes, with a tobacco duty increase of 1 per cent above inflation this year and a rise by 2 percent in real terms each year until 2014. This means that a packet of cigarettes will cost GBP 0.15 (EUR 0.17, USD 0.22) more, as will a 20-gram pack of tobacco. (United Kingdom - budget 2010 released - new taxes on tobacco..)

ASH UK (Action on Smoking and Health) welcomes the rise in tobacco duty as a step In the right direction. Deborah Arnott, ASH Chief Executive said: "The 15p rise in tobacco tax will encourage some adults to quit but is unlikely to have as strong an impact as a price rise of 5% or more above inflation would have had. Raising the price of tobacco is one of the most effective ways of reducing smoking."

Following the 4% increase in tobacco duty in the new budget, Japan Tobacco International (JTI) believes that the current Government has taken a backward step by returning to a policy of duty escalation above inflation which will seriously undermine the progress made in reducing tobacco smuggling (contraband, illicit, illegal).

JTI, Britain’s second-biggest cigarette manufacturer, is urging the Chancellor to freeze duty on cigarettes and handrolling tobacco to cut the chance for criminals to profit from sales of illicit tobacco products. JTI, whose brands include Benson & Hedges, Silk Cut, Mayfair, Hamlet and Camel, argues that further increases in the Budget will make the problem worse. Japan Tobacco took over Britain's Gallaher Group in April 2007)

Daniel Torras, Managing Director of JTI UK, commented: "HM Treasury already loses c. GBP3bn (EUR 3.8bn, USD 4.5bn) each year in tax revenue to smugglers, and has lost up to GBP38bn (EUR 42bn, USD 56bn) since 2000/1 to smugglers and crossborder shoppers, the size of the annual UK Defence budget. This tax rise is further good news for criminals who already view the UK as a smugglers paradise and do not care what age their customers are.

This is backed up by the following figures: HM Revenue and Customs (HMRC) estimate that in 2007/8 smuggling and crossborder shopping, collectively referred to as non-UK duty paid (NUKDP) consumption, lost the Government tax revenue of up to GBP4 billion (EUR 4.5bn, USD 6bn):
- NUKDP share of the total cigarette market up to 24%
- Smuggled share of the total cigarette market up to 17%
- Crossborder shopping share of the total cigarette market 7%
- Counterfeit share of all large scale cigarette seizures 49%
- NUKDP share of the total handrolling tobacco market up to 63%
- Smuggled share of the total handrolling tobacco market up to 54% (pi)

GRAPHIC: Tax revenue goes up in smoke.

References: New tax hike makes UK a smugglers’ paradise, Tobacco Journal International, 3/25/2010; Call for lighter tax regime, Ian King, Deputy Business Editor, Times Online, 3/15/2010.