From: Malaya Business Insight
In Singapore, smoking incidence in 2007 was virtually unchanged from 2001 which indicates that the massive increase in tax rates since 2001 has not been effective in reducing tobacco consumption.’
The following is a continuation of the report of the Senate Tax Study and Research Office (STSRO) on the proposed excise tax on sin products. The study is largely concentrated on cigarettes and points out that even developed countries such as the United States and the United Kingdom, among other nations, have not been able to curb illicit cigarettes which flourish every time the tax is raised.
Singapore
“Total duty-paid industry volume dropped by 43 percent from 3.2 billion cigarettes in 2000 to 1.8 billion cigarettes in 2006. Following the excise freeze duty-paid industry volume recovered to 2.4 billion cigarettes in 2009.
“The volume of illegal cigarettes seized by the Singapore Customs increased from 8 million cigarettes in 2000 to 106 million cigarettes in 2006. This figure declined by 45 percent in 2009 to 58 million cigarettes.
“Singapore has very strong anti-illicit trade legislation. Consumers smoking illicit cigarettes are fined S$500 (US$359) and massive public campaigns inform the citizens about the fines and jail terms of importing, distributing, storing or selling illegal cigarettes.
“Smoking incidence in 2007 was virtually unchanged from 2001 which indicates that the massive increase in tax rates since 2001 has not been effective in reducing tobacco consumption.
“Conclusions
“The past 10 years can be broken down into two distinct periods: 2000-2005 was a period of sharp excise tax increases. Since 2005 there has been no tax increase. Excise duty revenue decreased significantly between 2003 and 2006 despite the tax increases. (Underlining provided)
“The increase in illicit trade until 2006 was driven by tax increase which was summarized by the Finance Minister, Lee Hsien Loong at the time in his 2006 Budget Speech: “I seriously considered raising tobacco duties, but have reluctantly decided against it because we are already seeing revenues declining, not because people are smoking less but because smuggling has gone up.’
“From 2007 there has been a good recovery in Government excise revenue and duty-paid sales volumes whilst the duty-unpaid volume has decreased. The improvement can be attributed to the strengthened enforcement efforts and the excise tax freeze. However, the 2009 illicit trade volume is still significant compared to the years prior to the steep tax increase.”
Sweden
“The illicit market grew to an estimated at 17% of the total consumption in only two to three years. The estimated total cigarette consumption in 2009 was at the same level as in 2004 (slightly above 7 billion sticks) despite duty-paid sales at 14% below their 2004 levels.
“Despite flat consumption levels, smoking incidence is shown to have decreased significantly over the past 10 years implying that either remaining consumers have increased their daily intake or a large segment of the smoking population is being ignored.
“Conclusions
“The excise hikes in 2007 and 2008 seem not to have led to a decline in total cigarette consumption. Furthermore, Government revenues have been undermined by the sharp growth in illicit trade, which has continued througHout 2009. In response the Government froze excise rates in 2009 and 2010 and there has been a positive rebound in duty paid sales and excise revenues.” (Emphasis provided)
United Kingdom (UK)
“A continuous escalator policy generated very high levels of illicit trade between 1993 and 2000. Prior to 1990 it was negligible .
The non-UK duty paid (NUKDP) cigarette market peaked in 2000 at billion sticks. The UK Government implementation of a tackling tobacco smuggling strategy in 2000 and the policy of moderate tax increases in 2001 had the immediate effect on halting the growth in NUKDP cigarettes.
“The number of NUKDP cigarettes was reduced to 18 billion sticks by 2007 according to figures from the Tobacco Manufacturers Association. However, in the same year approximately 40% of the market (Cigarettes and HRt’) still did not pay UK excise duty tax by either legally purchasing tobacco products abroad for personal use or due to illicit trade. This figure dropped to 36% in 2008 as a result of the economic crisis with less UK residents travelling abroad.
“The Government’s ‘duty escalator’ policy had no impact on smoking incidence levels which remained stable at 27 to 28% between 1993 and 2000. In following years it started declining to reach approximately 22% in 2008.
“Conclusions
“Excessive tax increases between 1993 and 2000 provoked a significant rise in illicit trade and impacted legal market volumes resulting in tax revenue decreases with the UK Government losing more excise revenue due to smuggling than any other country in the world. The ‘duty escalator’ policy also did not help in reducing smoking incidence levels which remained flat. The situation is improving as the Government dedicates significant resources to enforcement against the illicit trade.• However the incidence of tobacco products not taxed in the UK remains very high, especially for HRTwhere 63% remained NUKDP in 2008.” (Underscoring supplied)
