United Kingdom - tobacco companies warn tax increase will lead to an increase in cigarette smuggling..

February 7, 2011 - The tobacco industry, dominated by Imperial Tobacco and Gallaher, claims the rate of smuggling and the volume of contraband sold on Britain's streets will raise when excise duty goes up. The tax on a packet of 20 cigarettes rose 34p last year and the budget is scheduled to bring the increase for 2011 to 39p a pack. This compares with the previous nine years of inflation-only duty rises, adding between six and 12 pence a year to the cost of a pack. (100pence(p) = 1 pound)

The average price of a pack of 20 cigarettes reached £6.29 (10.07 USD) in the UK last summer, compared with £2.80 (4.48 USD) in Spain and £1.57 (2.51 USD) in Poland, according to official European figures. While Customs officials have made good progress in curbing an explosion in smuggled tobacco sales in recent years, Chris Ogden, chief executive of the Tobacco Manufacturers' Association, warns their good work could be destroyed as organised criminal gangs target their tax evasion efforts on the UK.

Tobacco sales are a major contributor to Treasury coffers, with about 77% of the pack price going directly to the chancellor. VAT and duty already raises £11bn a year for the Treasury – more than the £7.6bn raised in corporation tax from the UK's financial sector. It is more than enough to pay for the entire costs of running the army, or about a third of the cost of general and acute hospitals.

Governments like to tax tobacco in a recession as it is regarded as one of the easiest ways of boosting Treasury coffers. The addictive nature of cigarettes means that consumers tend swallow the extra expense rather than cutting back on consumption as they might do with other heavily taxed products.

Health campaigners dispute assumptions that there is a necessary link between tobacco tax rates and smuggling. Deborah Arnott, chief executive of Action on Smoking and Health, said: "Tough law enforcement measures are the way to tackle tobacco smuggling. The tobacco industry is being disingenuous in claiming that tax increases will result in massive leaps in smuggling. This did occur in the UK in the 1990s but only because the tobacco industry allowed it to happen. (Canada tobacco firms admit aiding smuggling..)

"Since the government started cracking down on smuggling and new laws were put in place with the threat of heavy fines for manufacturers which allow their products to be smuggled, smuggling has reduced dramatically. Tobacco taxes have risen above inflation for the last two years and there has been no sign of an increase in smuggling."

Customs have been promised more resources to tackle the anticipated rise in smuggling and its work is expected to be co-ordinated by a newly appointed head of counter-smuggling activities.

Reference: Tobacco taxes set to boost smuggling • Higher rates of duty raise amount of contraband • Treasury gets about 77% of pack price of cigarettes, Simon Bowers, guardian.co.uk, 2/6/2011. (Britain, Brits)