16 Aug 2014
Breitbart News
The European anti-fraud agency OLAF has recently announced that between 2009 and 2013 the European Union (EU) lost €700 million in taxes as smugglers cross into Spain to sell cigarettes at half the prices.
Two hundred Marlboro in Spain are €47, compared to €18.50 in Gibraltar. However, it is trivial compared to the estimated €10.9 billion lost throughout the EU, with 10 percent of all EU cigarettes being illegal.
The irony is that many British visitors see Spain as a
cheap place to buy cigarettes. By comparison the UK price is an eye
watering €120. Between 2006 and 2011, the amount of tobacco imported
into Gibraltar tripled and organised crime has exported it to the
mainland. It is also one of the pretexts for Spain to hold
time-consuming searches of Gibraltar cars in their attempt to pressure
the British government into relinquishing control of the territory.
The authorities both sides of the border have been
hand-wringing under the mantra that something must be done, however much
of it may well be in vain.
The World Health Organization and its Framework Convention on Tobacco Control, a treaty
that the UK and the EU are signatories to, oblige governments to raise
taxation on tobacco. In November 2012, it wrote: “Increasing tobacco
taxes generally further increases government revenues, as the increase
in tax normally outweighs the decline in consumption of tobacco
products.” Spain is no doubt encouraged to raise taxation to help
prop up its deficit and Euro-addled economy. The unintended consequences
of tobacco taxation are mimicked elsewhere worldwide. As taxes are
increased, it becomes lucrative to avoid or evade taxes as described by
economist Professor Arthur Laffer and his eponymous curve.
The highest rate of tax on cigarettes is in Ireland.
Unsurprisingly the country has an epidemic of legal and illegal tobacco
importation. It is, for now, entirely legitimate to go to another
country in the EU and bring back as much tobacco as you like as long as
it is for personal consumption and not for resale.
It is estimated however that 27 percent of
all tobacco and cigarettes in Ireland are consumed free of duty. €556
million is lost to the Irish treasury, with some quite unwholesome
terrorists involved, The Irish Retailers Against Smuggling hold the
Provisional IRA, the Real IRA, the Continuity IRA and the INLA
responsible, stating that "criminal gangs are making €3 million per week
from illegal tobacco trade.”
Worldwide, Action on Smoking and Health (ASH) Scotland accuse
the Taliban, al-Qaeda, Hezbollah, the Kurdistan Workers Party (PKK)...
the Columbian FARC... and the Chinese Triads.” I am sure it will not be
long before ISIS is involved. In New York, as reported previously,
it was discovered that high prices meant that only 19.4 percent of
cigarette packs were legally purchased with local taxes paid.
Canada in 1995 nearly saw the trade disappear as this paper
from the Fraser Institute outlines. Unwisely the anti-smokers in 2000
pushed for higher taxes and like Ireland has a 27 percent saturation of
illegal tobacco.
Smuggling is not a victimless crime. Retailers suffer as
do legitimate tobacco manufacturers. In fact, in Australia and other
places tobacco companies employ their own agents to find stores who are
selling illegally.
The implication for plain packaging is more than implied. Illegal contraband sales are up from 13.3 percent to 13.9 percent of the market in Australia in the first year.
The whole racket seems to have an American prohibition
feel about it, with large sections of society willing to be criminal as
smugglers save them taxes. The anti-smokers are the most guilty in
pushing increases in taxation to reduce consumption.
Smoking is, economically speaking, inelastic. There is
little reduction in consumption in response to higher taxes. Governments
and anti-smoking advocates have largely created the problem themselves,
eager to tax and spend, and they have passed the Laffer Curve and will
see only diminishing returns.
The law of unintended consequences are wholly observable.
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