Raising Tobacco Taxes Is Not The Answer
As governments review budget deficits, someone in government is yelling down the hall “raise tobacco taxes!” It is easy to do since only 20% of the voters smoke and thus will be affected – simple minded thinking which has caused the issue of contraband tobacco representing 30% of the total market in the first place. Raising tobacco taxes creates a larger profit incentive for contraband tobacco to be sold in neighbourhoods, and office buildings. Government policy has been designed to de-market or negatively influence people to stop smoking, especially youth and higher taxed product makes the product less affordable. In comes contraband tobacco that can be sold for as low as 10% of the price of legally fully taxed product, and the underground or illegal market is formed. Current market estimates indicate that contraband is approximately 30% of the total market or approximately $2 billion in underground sales. That represents approximately $300 million in direct lost profit for the convenience stores in Canada. Raising tobacco taxes can only make matters worse. Thankfully, some provincial governments are aware of the problem and are not taking short-term action (raising taxes) because of the long term pain. The national and regional associations are busy working with governments to ensure that politicians are fully aware of the issues and consequences of this major societal problem. Smokers who are purchasing contraband tobacco are describing it as a victim-less crime. They are saving money from the government. When you consider this line of thinking with youth access to cheap unregulated tobacco, then as one alarming voice would say it “Houston we have a problem”. What are your thoughts?