Government losing millions every year as criminal gangs feed on public’s demand for cigarettes in an era of high taxation, writes Giles Roca
THE true extent of how excessive taxation on tobacco products in the UK and in Scotland has shifted consumers to “non-shop sources” was revealed recently in one of the largest studies into adult smoking behaviour.
High taxation has driven consumers to find a cheaper, illegitimate source of tobacco
One third of smokers admitted to buying tobacco products from “non-shop” sources, meaning that rather than going to a supermarket or corner shop, smokers are buying their tobacco from abroad, online, from friends of family, in pubs, in the street, at car boot sales, in vans, at work and in “fag houses” (private houses selling tobacco).
In Scotland the picture showed that 22 per cent of smokers bought their products from “non-shop” sources – 87 per cent of those paid less than £5 per pack of 20 and 73 per cent of those who purchased hand rolling tobacco paid less than £8 per 50 gram pouch. These prices are significantly lower than the prices of similar shop-bought products.
The result of this surge to “non-shop” sources is a shift to non-UK duty paid products and therefore, the Treasury losing £2.1 billion of tax revenue every year. In addition, the Treasury loses a further £500 million because of cross border shopping each year.
The tax revenue lost in Scotland was around £284m in 2014 and independent shopkeepers lost more than £29,000 each in sales to “non-shop” traders, which had serious implications for the ongoing viability of their businesses.
To put the illegal tobacco trade into context, it is the second largest loss to the Treasury after VAT avoidance. Taxation on tobacco products across the UK has spiralled out of control.
Over the past five years, tax on tobacco has risen 40 per cent and now accounts for 80 per cent of the price of a packet of cigarettes.
This is the highest amount of taxation on tobacco in the whole of the EU.
High taxation has forced up prices and driven consumers to find a cheaper, illegitimate source of tobacco.
Successive governments have come under pressure from the professional anti-tobacco lobby who shout noisily with scant regard for the facts or the consequences (as indeed they will do so again in response to this article), and adopted a high tobacco tax policy without giving proper consideration to the potential impact on the illicit market.
The high tobacco taxation policy has fundamentally failed. The only beneficiaries are the criminal and terrorist networks that traffic counterfeit illegal tobacco brands.
Indeed, the global illegal tobacco industry is one of the world’s foremost criminal enterprises and the government must use all means possible to counteract its malign influence.
That is why I welcomed the UK government’s announcement in February that it would create a new cross departmental ministerial group in order to co-ordinate a joined-up strategy to combat illicit tobacco.
The global illicit tobacco industry is one of the world’s foremost criminal enterprises and it is essential that this new government group review, at the soonest opportunity, the failed policy of high taxation on tobacco products, which has blighted the UK for the past 20 years.
The new group must fully assess the impact of legislation implemented in recent years on the illicit trade by both the UK and Scottish governments. In addition to the high taxation tobacco policy, the group must also review standardised packaging legislation and the Tobacco Products Directive, which will see a complete ban on packs of less than 20 cigarettes and hand rolling pouches of less than 30 gram. All these measures are set to take effect from May 2016. Despite evidence from Australia demonstrating a direct link between plain packaging and the growth of contraband tobacco, the UK and Scottish government’s implemented legislation which could further increase the epidemic. Raising minimum pack sizes and therefore prices will only exacerbate the problem still further.
In addition to assessing whether existing legislation combats or fuels illicit trade, a fully integrated anti-illicit trade strategy must also examine what new legislation would effectively tackle it.
One welcome move would be for HMRC to end “guidelines” on how many tobacco products can be brought into the UK from the EU and move to formal restrictions.
This would work to reduce illicit trade from high risk countries such as Romania and Bulgaria, which have relatively low cost cigarettes and very high incidences of counterfeit goods.
Over the past two decades, governments have passed legislation on tobacco without properly taking into consideration the impact it could have on lawbreaking. The illicit trade epidemic is out of control and is likely to get worse unless rigorous action is taken now.
• Giles Roca is director general at the Tobacco Manufacturers’’ Association www.the-tma.org.uk