UK Budget Will Fuel Illicit Trade

Source from:  Tobacco Reporter 03/26/2010

Japan Tobacco International says the UK government's above-inflation duty increase announced as part of yesterday's Budget will seriously undermine the progress made in reducing tobacco smuggling, according to a PRNewswire story. JTI believes the four per cent increase in tobacco duty represents a backward step. Daniel Torras, managing director of JTI UK, said the treasury already lost about £3 billion a year in tax revenue to smugglers, and had lost up to £38 billion - the equivalent of the UK's defence budget ̶ since 2000/1 to smugglers and cross-border shoppers. "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," said Torras. "Since January the tax on cigarettes has risen more than the previous three UK Budgets combined. Today's increase follows the VAT increase on cigarettes at the beginning of 2010 of 18p, which was in effect a tax on a tax, and brings the total tax rise so far this year to 33p." JTI UK presented some background figures as part of its press note issued through PRNewswire: * Prior to the Budget, a premium brand of 20 cigarettes selling for £6.13 a pack in the UK was £3.00 to £4.00 a pack cheaper in many European countries and cheaper still outside the EU. * Prior to the Budget, the total tax yield on a premium brand pack in the UK, at £4.67, represented more than 75 per cent of the recommended retail price (RRP). For value brands the tax yield was £4.09, which represented 88 per cent of the RRP. * In 2009, tobacco tax revenue raised more than £10.5 billion for the treasury - £8.8 billion in excise duty and £1.7 billion in VAT. * The customs department estimates that in 2007/8 smuggling and cross-border shopping, collectively referred to as non-UK duty paid (NUKDP) consumption, lost the government tax revenue of up to £4 billion. * At that time, the NUKDP share of the total cigarette market was as high as 24 per cent. * The smuggled-product share of the total cigarette market was up to 17 per cent. * The cross-border shopping-product share of the total cigarette market was seven per cent. * The counterfeit-product share of all large scale cigarette seizures was 49 per cent. * The NUKDP-product share of the total hand-rolling tobacco market was as high as 63 per cent. * The smuggled-product share of the total hand-rolling tobacco market was up to 54 per cent. * The customs department estimates the scale of smuggling and cross-border shopping since 2000/1 amounts to a loss of up to £38 billion in tax revenue. * When VAT was reduced in December 2008 because of the economic crisis, tobacco and alcohol excise duties were increased to leave the prices of these products broadly unchanged. However, when VAT returned to 17.5 per cent, there was no compensatory reduction in the excise duty. As a result, the price of a pack of 20 cigarettes rose by up to 18p, the largest single increase in 10 years. Enditem