Higher tobacco taxes planned in 2010 UK budget

Last week the United Kingdom Finance Ministry announced the 2010 State Budget. It will be the last budget for the Chancellor of Exchequer (UK Finance Minster) Alistair Darling, before the June UK general elections.

Mr. Darling declared that duties on tobacco products will raise by 1% over the level of inflation and besides that, duties would as well rise by another 2% annually over the next four years.

According to the latest tax increase, the best price of a pack of 20 cigarettes increases by 15 pence; a pack of 5 cigars will cost 6 pence more; the price of rolling tobacco will be increased by 15p per 25 g, other tobacco products will cost 9p more per each pack.

In addition, from 2011, longer cigarette will be taxed even more, as every extra 1.10 inch above the regular size will be referred to as another cigarette and taxed as two cigarettes.

Debora Arnott, president of anti-smoking charity Action on Smoking and Health claimed that the latest duty increase will help some smokers to give up, but still, it is not enough to encourage more people to get rid of habit. She added that they would urge the officials to increase tobacco duties over the next years, as taxation is the best way to reduce smoking rates, according to ASH president.

Chris Ogden, chairman of the Association of Tobacco Manufacturers stated that that Finance Ministry already implemented the highest tobacco tax increase in a decade in January, and after three months there goes another increase. He said that the increase is rather ridiculous, since instead of taxing a legal industry to death, the officials should rather adopt measure to crack down the illicit market, which represents 24% of aggregate cigarette turnover in the country.

Japan Tobacco International, the UK second-largest tobacco company, sent an open letter to the Chancellor of Exchequer, asking him to put a hold on the increase of taxes of cigarettes and other tobacco products, and reduce the opportunity for the criminal groups to benefit furthermore from the sales of counterfeit and untaxed tobacco items. The company, whose brands portfolio comprises such outstandingly popular brands as Silk Cut, Hamlet, Benson & Hedges, Mild Seven, Mayfair, etc, stated that additional tax increases on legal problem will only worsen the issue with the black market, which is currently more than difficult.

JTI Senior Director Daniel Torras declared that the treasury misses GBP3bn (approximately USD 4.5bilion) annually in lost taxes because of the illicit market, and fell short of GBP38bn (nearly USD 56bilion) within a decade to black market. And the latest tax hike is the great opportunity for smugglers to yield even more.

The statement of JTI Managing Director can be proven by the following numbers: HM Revenue and Customs reported that the share of non-UK duty paid cigarettes rose to 24% of the overall UK cigarette market, while the share of rolling tobacco smuggled to the UK currently comprises 63% of the total market.

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