Taxation is one of the most effective measures for reducing tobacco consumption. The tobacco companies oppose tax increases. More and more, they rely on the argument that higher taxes are an incentive for smuggling.
According to the industry, increased cigarette taxes will reduce legal sales, but not total sales (legal and illegal sales combined). They argue that increased taxes will lead to increased smuggling, resulting in less revenue for governments and undermining taxation as an effective health policy to curb tobacco consumption.
The tobacco industry argues that increase in tobacco tax will lead to a massive increase in smuggling and reduced government revenues, is it telling the truth?
No. as the World Bank's report concludes, tax increases lower tobacco consumption while raising government revenue, In Hong Kong, the Customs and Excise Department works quite closely with the tobacco industry to tackle the smuggling problem. Tobacco Institute's move to be identified as a collaborator with Customs and Excise in Hong Kong is, in fact, a deception.
There is a lot of evidence on the tobacco industry's deep involvement and complicity with smuggling activities around the world. The industry only used the smuggling issue as an argument against increases in tobacco duty, which will affect on their revenue.
The appropriate response is to crack down on criminal activity rather than freeze or reduce the tobacco tax. Concession on the increase in tobacco tax will instead make cheap tobacco available to smokers from both side of duty-paid cigarette and contraband ones from the black market.