Tobacco price hike will fuel smuggling boom

Sharp increases in the price of cigarettes in January 2010 could fuel an explosion in tobacco smuggling, the Tobacco Retailers Alliance (TRA) has warned.

The proposed increase to VAT announced in the chancellor’s pre-Budget report will mean a price rise of around 13 – 18p on a packet of 20 cigarettes.

Retailers fear the cost increase will push more smokers onto the black market in tobacco products, which are typically sold at half the retail price.

The price hike has resulted from a supplementary tax on tobacco introduced a year ago to compensate for the VAT reduction to 15%.

cigarettes

The purpose of this was to stabilise the retail price of tobacco products, but despite VAT now reverting to 17.5% the levy has not been adjusted. This will result in the biggest price increase to tobacco since the year 2000, the TRA claimed.

Currently around 24% of cigarettes and 67% of hand-rolling tobacco avoids UK tax, it said.

Ken Patel, a newsagent from Leicester and TRA spokesman, said: “In this recession when people are losing their jobs and looking to save money, the chancellor has massively increased the cost of cigarettes. This will fuel the fire of the illicit trade in cigarettes which adversely affects businesses like mine, which depend on sales of tobacco products.

“Around one third of my trade is in tobacco products and anything that displaces sales of cigarettes from my shop to the black market is going to be very bad for business.”

Christopher Ogden, chief executive of the Tobacco Manufacturers’ Association (TMA), said: “We strongly recommend that the government reverses this tax increase at the next Budget, otherwise the expected surge in illicit trade will undo all the hard work that the TMA’s member companies and enforcement agencies have undertaken in recent years in tackling the illicit trade in tobacco.”

source: talkingretail.com

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