DRAFT
BACKGROUND ERIEFING PAPER 0
Taxation and_Cigarette-Use
Although cigarette taxation, compared with that on
other
products, is.already inequitably high in many
countries, the
opponents of smoking continue to urge governments
to increase
it as a method of reducing cigarette use. There
are however a
number of reasons, some fundamental, some
practical, why
governments should not be influenced by this
pressure.
V"hat role should Govermient plaY9
Should a government have the right to interfere
with the
private lives and freedom of citizens by
inequitably taxing a
legal product, and thereby limiting their
purchases of that
product? It may be argued that all taxes'in some
way limit the
purchasing power of the individual. This
limitation is broadly
accepted, provided that the revenue raised is
sperit in the
overall interest of the nation. What can not be
acceptable,
however, is the use of fiscal power through
inequitable
selective taxation in order to dictate a way of
life to the
individual. This is what the opponents of smoking
are asking
governments to do.
OD
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BATCo industries for Province of British ColuMbia
27 October 1999


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Loss of revenue and other economic effects
A government that unwisely uses its taxing policy
may find that
it has' created for itself an economically
embarrassing
situation. Excessive cigarette taxation could
bring about a
decline in ci.garette use, resulting in a
reduction of tobacco
industry income, which has always been a fruitful
source of
government revenue through fiscal measures such as
corporation
tax. Indeed, if cigarette taxation becomes really
excessive,
the point could be reached when government revenue
from excise
and duty on cigarettes falls below the levels of
revenue
produced by the lower rates of cigarette taxation
in force in
previous years. Furthermore, other unfortunate
effects, both
social and economic, can result from high
cigarette taxation,
causing a fall,off in sales - namely redundancies
and
unemployment in the tobacco industry.
A further compelling reason for governments not to
be
influenced in this matter by the opponents of
smoking is that
high cigarette taxes wrongly discriminate against
smokers with
low incomes, who must pay the same tax rate per
pack as smokers
with high incomes. This point was strongly made by
a former
British Health Minister who was quoted in The
Scotsman
newspaper on December 28th, 1976, as saying that
any effort to
eliminate cigarette smoking solely by taxation
would be wrong,
because it would hit hardest at those people with
low incomes..
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1 nccntive_to_the_!muHlinR of_cigarettes
Very high levels of cigarette taxation run the
risk of
providing an incentive to smuggle cigarettes into
the country
concerned, particularly in those countries which
have easily
penetrable borders. Successful smuggling
inevitably resu.1ts in
a loss of government revenue and damage to the
domestic tobacco
industry. It certainly does not reduce the use of
cigarettes
and can even increase it. Furthermore, it can
produce serious
economic and social repercussions. For example in
the last two
years, cigarette -smuggling in one African country
has reached
such proportions that, apart from the loss of
government
revenue, the domestic tobacco industry has lost
sales to
contraband cigarettes, to such a degree that
redundancies and
consequent unemployment have been forced upon it.
Needless to
say also, that when domestic brand cigarette sales
fall
alarmingly, it constitutes a threat to the
livelihood of local
tobacco farmers who provide the leaf for these
brands. Finally'
the decline in the domestic tobacco industry's
income, income
of course subject to taxation, can only mean a
fall in the
government's fiscal intake from the industry.
HiElier taxes could change smoking actices
.11 P r
Neutral observers consider that it is possible
that cigarette C=
taxation high enough to reduce the number of
cigarettes that llf~
CX_
ccnsumers smoke, as desired by the opponents of
smoking, could
change how they smoke or what they smcke in a
manner which U
BATCO industries for Province of British ColuMbia
27 October 1999