Tobacco Tax Increase Will Not Stub Out Smuggling

Commenting on the Chancellor’s decision to increase tobacco taxes in today’s Budget, Christopher Ogden, Chief Executive of the Tobacco Manufacturers’ Association (TMA), said:

“The increase in tobacco tax announced today will do little to reduce the level of tobacco smuggling and crossborder shopping which lost the Treasury £4.5 billion in revenue last year. The decision helps to maintain the UK’s position as one of the world’s most profitable destinations for tobacco smugglers and this is of great concern to the TMA and its member companies.”

HM Revenue & Customs’ (HMRC) latest estimates show that up to 18% of cigarette and 62% of handrolling tobacco consumption is smuggled and 70% of all large scale cigarette seizures are counterfeit. On top of this many other smokers choose to buy their tobacco products from elsewhere in the EU where taxes and therefore prices are considerably less.

Mr Ogden added:

“UK tobacco manufacturers are totally opposed to the illegal trade in tobacco products, which undermines the government’s health policy, deprives the treasury of revenue, weakens legitimate retailers’ businesses and makes it easier for those under the legal age of purchase to obtain tobacco on the black market.“

Through a comprehensive Memorandum of Understanding, and supporting legislation, the TMA and its member companies continue to work closely with HMRC to combat the smuggling of both genuine and counterfeit tobacco products.

An example of this co-operation, the incorporation of covert security features in the tobacco products manufactured by our member companies, was announced at last year’s Budget. This measure will help to ensure that counterfeit tobacco products are kept out of the legitimate retail network. We have supplied HMRC with the necessary equipment that will enable them to start enforcement action soon after this Budget.

While the growth in the level of smuggling has been halted in recent years, HMRC still need to be provided with increased resources to tackle the problem.  However, the TMA believes the high level of tobacco tax, the root cause of the high level of tobacco smuggling, needs to be addressed and a fundamental review of fiscal policy must be undertaken.

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For further information please contact:

Ian Howell, Tax & Information Manager

t: 020 7544 0113 or e: ihowell@the-tma.org.uk

Notes to Editors:

1. This press release is issued on behalf of the TMA’s member companies; British American Tobacco, Gallaher Ltd and Imperial Tobacco Ltd.

2. HM Revenue & Customs estimates that in 2005/6 up to 18% of cigarette and up to 62% of handrolling tobacco consumption was smuggled. Crossborder shopping accounts for a further 8% of cigarette and up to 14% of handrolling tobacco consumption.

3. Prior to the Budget a typical pack of 20 cigarettes cost £5.55 in the UK against around £1.90 in Spain. A 50g pouch of handrolling tobacco cost £11.20 in the UK against around £3.75 in Belgium.

4. The TMA estimates that in 2007 around £4.5 billion in revenue was lost through smuggling and crossborder shopping in tobacco products and over the last ten years these losses exceed £40 billion.

5. The Memorandum of Understanding (MoU) between the TMA’s member companies and HMRC creates a comprehensive framework for co-operation aimed at combating the smuggling of both genuine and counterfeit tobacco products into the UK as well as seeking to deter all aspects of the illicit trade in tobacco products. Under the MoU there is an undertaking that both industry and HMRC will work together to identify and assess technologies that could be of benefit in tackling the trade in illicit tobacco products – the introduction of covert anti-counterfeit technology is a prime example of the benefit of the MoU approach in identifying particular concerns and quickly arriving at effective solutions.

6. The TMA met with Angela Eagle MP, the Exchequer Secretary to the Treasury, on 21 February to outline the measures that would reduce the level of smuggling and crossborder shopping. These are:

•A freeze in the level of tobacco tax – as seen in previous years, any increase only serves to increase the incentives for those who smuggle and those who seek to purchase illicit tobacco.
•HMRC should make full use of existing laws to prosecute those who trade in illicit tobacco products.
•HMRC needs more resources and manpower for enforcement action.
•HM Government should seek to introduce a fixed rather than indicative level on the amount to tobacco products that travellers can bring into the UK from elsewhere in the EU.