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Tax will spur illicit sales: institute

WHITE-LABEL TOBACCO:Sales of illegal cigarettes are growing among the middle and upper classes due to stagnating income and anxiety over proposed tax hikes

A proposed increase to a tobacco product tax has led to criticism that it would exacerbate an already growing trade in illegal cigarettes.

A joint policy meeting of executive and legislative branch officials on Monday resulted in the drafting of a proposal to raise the cigarette tax by NT$20 (US$0.64) per pack.

The new measure, which is to be finalized by the legislature, is forecast to increase tax revenue by NT$15.8 billion per year, the Executive Yuan said, adding that the government plans to use the money to fund a long-term care program for seniors and the physically challenged.

A pack of cigarettes is currently taxed NT$11.8, plus a NT$20 surcharge.

The Tobacco Institute of the Republic of China on Tuesday expressed concern that increasing the tax would stimulate the trade of illegal tobacco products, adding that the government’s plan ignores the issue and market practices.

It added that the proposed tax deviates from the institute’s advice to the government on a long-term tax plan, which it said should involve reasonable, slowly introduced and predictable tax increases, adding that this is the only way to prevent the spread of illegal tobacco sales, as well as a subsequent loss in tax revenue.

The institute cited research data from the past seven years that showed a high number of illegal tobacco sales that “cause an annual loss to the Treasury of more than NT$1 billion.”

So-called “white label” cigarettes make up the bulk of illegal sales, the institute said, adding that consumption of these cigarettes is on the rise among middle and upper-class consumers.

In particular, there is a steady increase in consumption of white-label cigarettes among consumers in remote parts of eastern Taiwan, as well as in Taipei, it said.

The institute said these consumers are turning to white-label cigarettes due to stagnating incomes, as well as anxiety over proposed tax increases on legal tobacco products.

“The psychological effect of anticipated tax increases is changing the consumer base for white-label cigarettes,” the institute said in a statement, adding that people in the NT$30,000 to NT$40,000 income bracket this year constituted 27 percent of illegal cigarette sales, up from 21 percent last year.

People with low monthly incomes of NT$10,000 or less continue to make up 30 percent of illegal cigarette sales, it said, adding that managers and other professionals made up only 7 percent of white-label consumers in 2013, but now account for 17 percent.

The institute said that while this number is still significantly lower than blue-collar workers’ 58 percent sales contribution, the rapid rise in illegal cigarette consumption among professionals is alarming.

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