Are cigarettes being over-taxed?
Everyone now knows that smoking is A Very Bad Thing, and the Government have been taking this as carte blanche to slap as much tax as humanly possible on those evil little sticks of icky stuff. In fact, over the past five years, taxes on tobacco products have risen by 40%, meaning that tax is now around three-quarters of the price of a packet of cigarettes- the highest in the 28 states of the EU. But have the Government pushed smokers too far? A major new survey of over 12,000 adult smokers suggests that consumers are now turning to‘non-shop sources’ to avoid paying the excessive taxation-resulting in a massive loss to Treasury coffers.
The poll, by Mitchla Marketing/Survey Sampling International, is one of the largest of its kind and received input from law enforcement officials and surveyed smokers nationwide.It found almost one third (29 per cent) of smokers are now buying tobacco products from ‘non-shop sources’ due to the excessive costs in the UK.
While cigarettes (and to a lesser extent, alcohol) have always been seen as a no-brainer for levying taxes- after all the demand is considered ‘inelastic’, meaning no matter how much the price rises, the demand will stay the same- it seems there does become a tipping point at which demand doesn’t fall, but desire to do the right thing in respect of UK duty, does. This large increase in ‘non-shop’ alternative shopping has caused the Treasury to lose an estimated £2.6 billion of tax revenue every year.
The survey found that the primary reason smokers were buying non-UK duty paid products was due to the high prices in the UK – UK smokers buying a premium brand of 20 cigarettes duty-paid are charged over £9, while 87% of those buying from ‘non-shop’ sources pay under £5.
The survey also found that over half of smokers (51%) plan to buy tobacco products from abroad and bring back as many as they legally can (although almost half of those don’t actually know how many they can bring back, which depends whether you are travelling from inside or outside the EU, of course). Almost one in five smokers (17%) now regularly buy their tobacco from abroad to avoid paying UK duty and 78% of smokers said they had no objections to buying fags without UK tax, so long as it was legal, i.e. from abroad rather than from the back of a van.
Of course, cigarettes for ‘personal use’ can be brought back in potentially unlimited quantities from EU countries, but even within the EU, UK fags can cost up to sixteen times more- in Belgium smokers pay £4, in Spain £3.80 and in Moldova just 57 pence for a packet of 20 cigarettes- so it’s no wonder savvy smokers are buying cheap without paying UK tax.
Giles Roca, Director General of the Tobacco Manufacturers’ Association (TMA) said: “This survey shows that excessive taxation on tobacco products is forcing up prices and driving consumers away from legitimate sources. This is clear proof that the government’s high tax tobacco policy is not working.”
Naturally, non-smokers are probably far happier with the amount of tax levied on cigarettes, given the amount of revenue it brings in that can be used to fund the NHS for example, treating all those nasty smokers’ coughs. But what happens if the balance tips and the maximum revenue is earned at a slightly lower tax rate, meaning smokers can’t be bothered to try and get their fix cheaper?