THE UK EXAMPLE: HOW TOUGH ANTI -SMUGGLING MEASURES INCREASED GOVERNMENT REVENUES
The UK provides a case study for how tough antismuggling measures, as enshrined in the Illicit Trade Protocol, can enable governments to raise taxes, increase revenues and discourage smoking.
This wasn’t always the case. During the 1990s the government started increasing taxes above inflation to reduce affordability. By the beginning of the 21st century over 20 per cent of cigarettes smoked in the UK were smuggled, up from 5 per cent in the early 1990s. Worse still the illicit market share was predicted to grow to a third of the market within a couple of years if no action was taken. And access to cheap tobacco meant that the tax policy, which should have discouraged smoking and increased government revenues, was failing on both counts.
The tobacco industry lobbied hard, saying it was high taxes causing increased smuggling and the only solution was to cut taxes. But media investigations and parliamentary enquiries revealed that it was the industry itself that was fuelling the illicit trade. Tobacco transnationals were exporting cigarettes to countries where there was no end market, knowing they’d bounce back to the UK, cheap and untaxed. A good example is Andorra. From 1993 to 1997 sales of UK cigarettes to Andorra ballooned more than a hundredfold from 13 million to 1.5 billion. Andorra was importing enough cigarettes for every man, woman and child to smoke 140 a day. And it wasn’t just Andorra, British cigarettes were being exported to all sorts of places with no end market, including Latvia, Kaliningrad, Afghanistan and Moldova.
The tobacco transnationals denied all knowledge, but as one Member of Parliament said to the Chief Executive of Imperial Tobacco, “One comes to the conclusion that you are either crooks or you are stupid, and you don’t look very stupid.” The UK Government held its nerve and continued to increase taxes, while implementing a tough anti-smuggling strategy, which included strict supply chain controls and financial sanctions very much along the lines of the Protocol. Between 2000 and 2016, the last year for which there are figures, the size of the illicit market for cigarettes fell by nearly 60 per cent from 17 to 7 billion sticks, with revenue losses down from US$3.67 billion to US$2.36 billion (at current exchange rates).
Illicit trade is a major and growing global problem but the lesson from the UK is clear. The Illicit Trade Protocol can help countries raise taxes, increase revenues and drive down smoking prevalence.
Deborah Arnott
Chief Executive ASH (UK)