Illicit trade in tobacco products has been booming across Europe, and Ireland and the UK have also unfortunately failed to effectively tackle the problem. Cigarettes and tobacco were found to be the most reported counterfeit good in the UK in 2019/20. The price of cigarettes in the UK is the highest in Europe, and Ireland ranks second.
The most recent Irish government decision to raise the price of cigarettes by 50 cent provides a valuable example of how tobacco policies - often pursued out of noble motives - accelerate economic damage by incentivising consumers to turn to the black market.
According to a survey conducted by iReach for the Forest Ireland in October, 70% of adults (including 67% of non-smokers) in Ireland agree that it is “understandable' that consumers might choose not to buy cigarettes and tobacco from legitimate retailers in Ireland.
The Revenue’s Illegal Tobacco Products Research Survey 2019 found that approximately 484 million illegal cigarettes (24 million packs) were consumed in Ireland in 2019. The majority of those were bought duty-paid or duty-free abroad and smuggled here. Criminals continuously revise their methods in accordance with the circumstances which makes it extremely hard to get hold of them.
Compared to 2018, there was a 75 per cent drop in the seizure of tobacco products in 2019. While this begs the question of the efficiency of law enforcement and customs control, it is more important to understand why the demand for illicit cigarettes persists. Smugglers wouldn’t risk getting caught if they were not confident that illegal products would sell well in Ireland.
The Irish government’s ambition to reduce smoking rates by increasing the price of cigarettes lacks economic judgement. Excessive regulation and taxation of illicit goods reduces access to and availability of them, but the demand for them doesn’t go down. Criminal groups know this and respond accordingly wherever they see an opportunity to fill the gap in the market.
Illicit trade flourishes in overregulated areas. If a pack of cigarettes in Ireland cost 5 euros instead of 13 euros, there would be no reason for consumers to buy from criminals, and little incentive to smuggle into Ireland at all. The Irish government isn’t alone in its failure to recognise the unintended consequences of its excise tax policies.
The Russian government has recently proposed a 20 per cent increase in excise rates on tobacco products. The sharp increase in 2021 will make the average cost of a cigarette pack 140 rubles (1.53 euros) while in its neighbour country of Kazakhstan they are sold at just 455 KZT (0.89 euros). Similar to Ireland, due to its high tax regime, Russia has been struggling to keep illicit trade in cigarettes at bay, and in 2019, the share of illegal products in the Russian tobacco market reached 15.6 per cent - the highest ever.
There are of course many more examples across the world, and the trend is quite clear: an increase in excise taxes boosts illicit trade. The very nature of such taxes combined with branding bans - such as plain tobacco packaging put in place in 2018 - is punitive as they aim to divert consumers away from some products using price mechanisms. A much better strategy would be to educate consumers about health-associated risks and let them live.
By assuming authority over our choices, governments also punish legal retailers. Because illegal cigarettes are cheaper and are readily available, there is simply no need to go to an expensive legal shop. A few weeks ago, almost 3.5 million cigarettes were seized at Dublin Port.
The losers here are legal retailers.
Do high excise taxes solve public health problems related to smoking? No. Do they incentivise smugglers to flock to Ireland in search of illegal profits? Yes.
Overall, the upcoming increase in the price of cigarettes in Ireland is a call to action for criminals, and there is every reason to expect them to exploit the opportunity to the full. With such high prices and governments’ intent to control our life choices, consumers can hardly be blamed for buying smuggled cigarettes. The Irish government should put a moratorium on its excise tax policies before it is too late and reduce demand for illegal cigarettes by ensuring affordability of the legal ones.
Maria Chaplia is a consumer advocate and a master’s degree holder in Law and Economics. She has written for The Brussels Times, Euractiv, CapX, The Parliament Magazine, Conservative Home, and many more