High Taxes May Drive Cigarette Smuggling, BBC Discovers



It may be obvious that high taxes on goods like cigarettes create a massive incentive for a black market in which buyers can get what they want at a price that's not jacked up by the state's take and sellers can profit by catering to that demand. That's obvious to you and me. But to politicians and lots of journalists, that chapter of Econ  101 seems to have been ripped out of the textbook. So it's refreshing to see a venue like the BBC—the UK government's own "independent" mouthpiece—acknowledge that tobacco smuggling isn't just an inexplicable manifestation of the darkness in humanity's heart, but a logical outcome of politicians raising taxes too damned high.

The blurb for the BBC broadcast reads:

We look at the rising tide of global contraband—specifically, the smuggling of tobacco. It's estimated some 50 billion dollars of the stuff is carried across borders and sold, tax-free, every year around the world. That is a cost to governments and it also poses a health risk to consumers. But at what point do you stop blaming the criminals and the law-enforcers, and when do you start blaming governments themselves for imposing such high taxes on tobacco?

The full audio report can be heard at the link above. It notes that, because of taxes, cigarettes in Britain can now be wildly more expensive than smokes in developing countries, crating an easy source for smuggled product. The 2012 chart from the World Health Organization, below, shows that taxes represent about 80 percent of the price of cigarettes in the UK and across Europe. Drug smuggling rings, not surprisingly, have moved into the tobacco market.

Listen as Arthur Laffer tells the BBC correspondent that taxes are not a magic means of discouraging behavior you don't like, because people are stubborn creatures who will find ways to do what they want to do. He's especially interesting explaining that uniform tobacco taxes across the world won't solve anything, because then you'll just fuel illicit manufacture of cigarettes—something that should be easy to extrapolate from the whole drug smuggling ring thing.

Still, the BBC report is a step forward. A lot of health "experts" have a lot to learn about human activity in a world where black markets are old news.

Cigarette Taxes
World Health Organization

NEXT: Victor Nava on California's Pension System Dumping Hedge Funds

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. A new $2 per pack tax just slapped on cigs in Philadelphia. Rev up the U-Haul and take a road trip.

  2. I’ll agree that the taxes are too high, and that taxes are not a magic means of discouraging behavior. However, we all know that taxing something discourages it in non-magical ways. So what to tax? Sales, income, investment? We want more of all those things. So aren’t (reasonable) taxes on (e.g.) tobacco and alcohol a better (or at least less bad) form of taxation?

    1. What makes “sin” taxes less bad?

      1. Because it’s common sense that some things are better than others, both for individuals and for society as a whole. Which is better: a tax on fresh vegetables, or a tax on tobacco? You have to tax something, so why not choose wisely?


          You’re literally endorsing TOP MEN theory through the weasel words “common sense” and you’re talking about “the good of society as a whole” just like a progressive. Oh god it’s hilarious. Please, more!

          1. How about taxing uses of the expressions “common sense” and “the good of society as a whole”? Oh, and of the “fabric of society” and “something must be done”?

            1. Would it discourage the use of those things? Then I say yes! TOP MEN FTW!

          2. So you reject the idea of making any value judgments at all? Or just about what to tax?

            1. Making other people’s value judgments is evil. I don’t value what you value. Kinda the point around here…..

          3. One need not be a progressive to be concerned about the good of society as a whole. I think the Founders all had that concern, and they weren’t progressives by any means. Sheesh.

            1. I think the Founders all had that concern, and they weren’t progressives by any means.

              And that concern was expressed through a respect for individual liberty.

              Which makes all the difference.

              1. Yeah… but I don’t see how it’s apparently un-libertarian to consider how different tax systems could be “better for society” or not. I seem to recall a lot of apparently liberty-minded people debating the relative merits of sales and VAT and property and flat and progressive income taxes.

                So, given their known suppressive effects, how are we allowed to consider the relative merits of taxes? In other words, I’m acknowledging that taxes are for revenue, should be minimized and respect liberty as much as possible, and shouldn’t kill the golden goose. But we know they are going to suppress something to some degree. Is it so awful to compromise a bit with moralists? Was it illegitimate to trade Prohibition for high alcohol taxes? Not ideal, sure, but wasn’t it worth the trade-off? If the deal was “Legalize all drugs, but there’s a 25% federal tax on them,” how many libertarians would say: “Oh, no! It’s tax-free or nothing!”?

                I’m also not getting the view that seems to say: “No! We must never even consider how the tax code shapes behavior, even though we know that the tax code shapes behaviors (poorly) all the time.”

        2. “Society as a whole”?

          How about not taxing any class of goods and making that value judgment for everyone?

          If taxes are necessary – and some are, for those of us that aren’t Rothbardian anarchists – it does not follow that they should be arranged to disfavor whatever some people think ought to be disfavored, for “society as a whole”.

          Tax income, flat. Or tax sales, flat. IIRC they end up being essentially the same thing in the end analysis (as most people consume most of their income).

          No need to pick a “better” thing to tax “for the greater good” – nobody is qualified to decide or has any moral right to do so for anyone else.

          (Smokers and drunks, for instance, shouldn’t pay extra – and vegan teetotallers shouldn’t get a free ride; “society as a whole” is no excuse.)

          1. Tax income, flat. Or tax sales, flat. IIRC they end up being essentially the same thing in the end analysis (as most people consume most of their income).

            Or…tax income in a way that recognizes the diminishing marginal utility of income.

            Yeah, I’m fine with progressive taxation. Where can I turn in my libertarian purity card?

          2. So, tax fresh vegetables the same as alcohol and tobacco?

            1. If they are purchased, sure.

        3. I don’t think it’s a given that you have to tax something.

          1. I don’t think it’s possible to run even an ideal libertarian state without tax revenue. What’s the alternative? Donations? Lotteries? Bake sales? (Although I do like lotteries as alternatives to taxes, but I suspect there’s an upper limit on the amount of revenue they would generate.)

            1. Sure. Lotteries, donations, user fees, running-for-office fees. Whatever they want to do, as long as it’s not coerced. But even absent that, targeted taxes are the worst possible solution. Taxes are about revenue. Period. If the gov wants to meddle with individual choice, at least make them do it openly.

              1. It *is* doing the meddling openly. That’s part of what a tax is: a real and public discouragement. They’re all meddling. I just don’t agree that all meddling must be equally applied. I think a certain degree of targeting isn’t necessarily bad, and that it’s a good area for compromise with non-libertarians.

    2. You’re making the assumption that I should care to discourage your legal activities. I don’t.

      1. 1) There has to be some sort of taxation.
        2) Taxation discourages what is taxed.
        3) Therefore, if you must discourage something, what do you choose?

        1. I disagree with point 1, but suppose I take it as given.

          A head tax gets around the incentive problem unless you expect most people to flee or commit suicide.

          1. Sure, why not? Art. 1 Sec. 9 needs to stretch its legs now and then.

            1. I’m surprised I’ve never heard of a black person trying to reduce their taxes by claiming to be 3/5 of a person.

              How about that for reparations? All black people multiple their income tax rate by 3/5.

              1. They’re too busy trying to find a little Seminole blood in their family tree to fall under “excluding Indians not taxed”.

          2. A flat, everybody-pays-the-same tax? You realize that has zero chance of happening on planet Earth, right?

        2. 3) Therefore, if you must discourage something, what do you choose?

          Anything you want to discourage has no economic value. (Laziness, destruction, abuse, etc). Any voluntary activity that does have economic value tends to, net/net, make everybody involved better off. You don’t want to discourage any of it.

          1. So then, to you, it’s better to raise sales tax on food, rather than have proportionately higher taxes on alcohol and tobacco?

            1. Why have raise taxes on anything? Spend less. Cut taxes. Simplify the code, whether it’s sales, income or head, don’t start fucking around with exceptions. If there have to be taxes (debatable but granted), then make them as simple and fair as possible.

              1. Hold on, you’re shifting the goalposts. Of course I agree with spending cuts and tax cuts. The point is that if you have any taxes at all, what should you tax? I am arguing that it’s not illegitimate to, to some extent, avoid taxing things like income and jobs and investments which are pretty clearly positive on average, and to instead tax things that have much more of a downside (alcohol and tobacco).

                I do grant that it’s a road I wouldn’t want to go down too far, but I still think “sin taxes” are slightly preferable to many other kinds of taxes.

                1. Ok, if you’re going to tax purchases, then tax purchases. Sales taxes are ok, except that they are coercive and involve the government sticking its nose in other peoples’ business with no justification, but since you seem ok with that, go with it. But “Sin taxes” are not preferable to a general sales tax because they involve a higher degree of meddling.

                  1. FairTax? If you could cut away all the other taxes, it would be slightly progressive (tax refund on a capitation level), avoidable (used goods are not taxed), incentivizes being responsible by saving money (you’re taxed on purchases, not on income), and makes you aware of your contributions to Uncle Sam every time you go to the store.

                    It is still a tax. It can still be abused. However, just the act of putting their tax bill in front of the average citizen on a daily basis will foment revolution.

                    1. FairTax sounds better to me than what we have now, sure.

                2. avoid taxing things like income and jobs and investments which are pretty clearly positive on average, and to instead tax things that have much more of a downside [gasoline and carbon taxes]

                  See how that works? Philosophically, your argument is exactly the same as that of the Agenda 21 Eco-Cultists.

                  Anything can be construed as “sin” depending on one’s religious credo.

            2. Instead of raising taxes, flat income tax with no deductions. That puts everyone in the same boat. No more divide and conquer to be used against specific special interest groups.

        3. The only taxes I can think of which aren’t intrusive and don’t require massive bureaucracies to confirm them are head taxes and land taxes.

          Head taxes are simple but not “fair”; rich and poor alike pay the same.

          Land taxes are almost as simple: each jurisdiction has an acreage tax. It’s somewhat “fair” in that those who own more land, and land in expensive jurisdictions like cities, pay more.

          I can’t think of any way to implement an income or consumption tax which doesn’t require an intrusive bureaucracy to verify the self-reported figures. A land registry is a lot less so, and if you only require that the registry offices collect it as part of the registration renewal, then it can even be anonymous. Tax delinquent? Leave warnings with the registry. If the tax and penalties aren’t forthcoming within some reasonable period (months at least, maybe a year), then a court case would confiscate it.

          1. Didn’t we once run entirely on excise taxes? If you wanna sell stuff in our country, you’ll pay a fee to import it. I can’t see why a properly limited gov’t couldn’t subsist on just that.

            1. That’s better than income or consumption taxes, but still wide open to evasion, unlike head and real estate taxes.

              1. I struggle with land taxes. If it were a one-time transfer tax, I could get on board. However, I fully believe that property tax (or land tax) enforces the concept that we are just renters, and government owns all the land. I think that’s a very damaging premise to begin formulating a government from.

                1. I agree entirely; all government functions should be voluntary services, even national defense. But IFFFF you are going to start with the premise that there must be some taxes, even minimal, I think a land tax is the least intrusive. I rationalize it by that alone: adding an intrusive bureaucracy to verify income or consumption figures would more than double the size of the bureaucracy and be far more obnoxious than paying rent in the form of a land tax.

                  I ought to dig up those figures again. I think it came to less than $10B for criminal investigations, minimal oversight of private courts and police, paying for temporary guardians for orphans at a crime scene, etc, which is around $100 a year per family. It’s hard to get worked up over such a small property tax, compared to the crap you’d need to show you weren’t lying about income or sales.

            2. I thought “free trade” was, ya know, an important component of a classically liberal or libertarian worldview…

    3. So you’re totally down with the coercive theory of taxation. Got it.

      1. No, I am merely acknowledging the fact that taxation is coercive and discourages what is taxed, and then choosing what to discourage.

        1. Again: If “we” *must* tax, tax excess body weight.

          1. LOL, I have proposed that before around here, not entirely facetiously.

        2. And who chooses? TOP MEN of course! I had no idea you were such a progressive.

          1. Calling that “a progressive” is about as effective as calling a Nozickian minarchist “a STATIST!!!!!” because he’s not an anarchist.

            It’s vaguely defensible on the edges in an Asperger’s-y way, but you have got to be fucking kidding me.

            (I think his idea is indefensible on theoretical liberal grounds, but I also don’t like the Ideological Purity Police…. COMRADE.)

            1. If only our dear Papaya were a Nozickian minarchist. Hell, I’d settle for Papaya being an Objectivist.

              1. Perish the thought. What would Bo Cara do without him?

              2. I am inherently not an ideological purist. I have strong libertarian leanings, but I don’t think one can apply even libertarian ideology at 100% strength to everything and not end up with absurdities and collective suicide.

                In this case, as much as I would prefer a simpler tax system, I am willing to make some tradeoffs. E.g., let’s say the sales tax is 8% on everything. If it were revenue-neutral to tax alcohol and tobacco and pot at 16% and food at 0%, I’d support that.

                1. Ah, truly, Johnson was wrong. It’s actually pragmatism that’s a scoundrel’s last refuge.

                2. However, it isn’t revenue neutral, so you don’t even have the pragmatists like me on your side here — not to mention the issues of genuine social justice that are in play…

        3. “No, I am merely acknowledging the fact that taxation is coercive and discourages what is taxed, and then choosing what to discourage.”

          You are not qualified to do that. Neither is anyone else.

          1. So nobody is “qualified” to see the difference between (say) taxing investment income, and taxing cancer patients? Nonsense. Taxes are always a value judgement, beyond “where can we get money?”

            1. Here’s an idea: tax people for individual services provided by the government at the individual’s discretion, and adjust the amount based on the amount of usage.

    4. Sin taxes aren’t any better than a broader sales tax. I’d argue that they are worse. You end up with the perverse situation where government depends on something for revenue that it officially is supposed to be against. And on principle, I don’t like social engineering through taxes. IF taxes are necessary, then they should be applied broadly enough that anyone who benefits from them has to pay some and so that they don’t discourage any particular type of economic activity more than others.

      1. You end up with the perverse situation where government depends on something for revenue that it officially is supposed to be against.

        It’s not just perverse, it’s unsustainable. If the taxes actually reduce consumption, the revenue stream will dry up. So it’s actually an incredibly foolish tax regime to create in the first place. But of course the incentives are too perverse for them not to. Because politicians want money NOW, always NOW, and later is for the suckers who follow them in office.

        1. It’s not perverse, any more than it’s perverse for a city to write traffic tickets. Can it be taken too far, and made unsustainable? Of course. So don’t take it too far.

          1. TOP MEN will find the perfect balance, amirite?

            1. Nothing is perfect, and don’t let the perfect be the enemy of the good.

              OK, Mayor Episiarch, would you replace traffic fines with a flat tax on all cars, or what?

              1. Replace traffic fines with nothing.

                1. Replace traffic fines with restitution for damage caused by dangerous driving.

                  1. AMEN! Restitution for harm alone.

                  2. How does that work for parking tickets?

                    1. Who has been harmed? Follow the money. And don’t tell me it’s the government’s rental that got overstayed. That’s just pretending the government has a right to take your property and turn it into their revenue center.

                      Get rid of government prosecutors, turn that over to victims.

                    2. The point of parking limitations is to prevent people from hogging a limited resource and locking latecomers out. So “all drivers who can’t find a space” are harmed.

                    3. No, the store owner who owns the parking space is harmed if someone parks there who isn’t shopping at his store. If someone parks there al day and spends all that time buying stuff in the store, the owner will probably decide no harm. Conversely, if the parker comes in, spends half an hour, and buys nothing, has the store owner been harmed? His call, not yours, not mine, not the government’s.

          2. It has already gone too far. Far too far. How about we start reducing taxes across the board and shut the fuck up about raising them, especially fairness issue taxes?

    5. I like that “if you tax something you’ll get less of it” is accepted by some when it comes to sin taxes, but discounted when applied to income or investment taxes.

      In this case, they wanted less smoking but got fewer legal cigarettes instead.

        1. As is “sin”.

      1. The other thing about cigarette taxes is that as far as I know, they don’t actually discourage cigarette smoking. That’s just not how nicotine addiction works. Instead you have people buying the store brand mac-and-cheese box and thrift store clothes for their kids instead of higher quality stuff. It actually discourages virtuous spending/consumption to make up for the higher cost of cigs.

        1. But progressives COULDN’T support a regressive tax! They’re progressive, damnit!

          Don’t words mean anything to you, sir?

    6. Taxation whose purpose is to influence social habits is about control. That’s entirely different from taxation whose purpose to raise revenue.

      The intent of the taxation matters. The fact that sin taxes raise revenue is subsidiary to their primary intent of controlling behavior.

      By their nature, sin taxes are anti-liberty. They are clearly a worse form of taxation, from a liberty perspective, than broad based taxes.

    7. Define ‘reasonable’.

      1. “It’s some kind of filter thingy that lets people block trolls and stuff while surfing HyR.”

        I think. I can’t use it at work, so not totally familiar with it.

        How’d I do?

      2. If you are addressing me (long thread), I’d say that “sin taxes” would be reasonable as a low multiple of sales taxes. Maybe 2x or 3x. Not so high that it encourages lots of smuggling.

  3. Listen as Arthur Laffer tells the BBC correspondent that taxes are not a magic means of discouraging behavior you don’t like

    Untrue; just look at how much our feds despise employment and productivity.

  4. I have to admit that I am continually surprised by the greedy stupidity of politicians and bureaucrats, but I really shouldn’t be. I mean, you know these people are working off projected revenue charts (if we raise cig taxes X much we will increase revenue Y much), but the fact that they almost assuredly are not taking black market effects into account is amazing. It’s not like they don’t have tons of real-world numbers to go off of.

    But, then again, these are the same people who projected an 8% return on pension account investments…forever.

    1. The purpose of the tax is not just revenue, but to appease a voting bloc. In fact, appeasing a voting bloc is the main purpose. The only reason they don’t ban it is because they would lose more votes than they gain.

      You’re not thinking 4th derpmensionally.

  5. It’s nothing the state is doing. It’s just lawless characters engaging in unlawful transactions under the state’s nose in the hope of illegally keeping money for the state.

  6. Since it’s the BBC, let me go to Jermyn Street to find an appropriately proper shocked face.

  7. I am reminded of an old joke: if tobacco taxes discourage tobacco, what do you think income taxes do?

    It makes no sense that the purpose of a tax is to both discourage X AND get revenue from X. Real life example: there is a drought in my area, so the city fathers decided to raise water rate to discourage consumption. Usage went down, but so did revenue. Now they are complaining about not enough revenue.

    “The food is terrible and the portions are too small!”

    Top. Men.

    1. “If tobacco taxes discourage tobacco, what do you think income taxes do?”

      This is not a joke.

      1. Indeed it is not, which is part of my point.

    2. No, it does make sense, but that doesn’t mean one can both maximize tax revenue from a specific activity and suppress that activity at the same time. So your solons should have been prepared for a revenue drop to follow that water rate increase.

  8. “BBC: Surprisingly, the sky is blue.”

    1. Next week they will discover that countries who produce more are richer.

  9. If we want to encourage behavior that saves money, we ought to give smokes away.
    Smokers die early and save a ton on medical costs.

    1. This.

      What are a few children getting a whiff of second-hand smoke compared to “the good of society as a whole”?

    2. I like where you’re going with this, but smokers often have expensive health problems prior to death. We need a scheme where healthy people are productive until retirement, then drop dead in large numbers.

      Maybe in order to collect social security, you are given an overpowered bike like a 1290 Super Duke and required to race to the state capitol with no helmet. Your monthly check is bigger the faster you get there.

      1. Eh how about this:

        Social Security, etc or a vote.

        Pick one.

        1. Everyone gets 1000 Government Interaction Units each year. You can use them on consuming government services, or save them for votes.

          1. I’d rather have some of my money back than a vote.

            1. You may also sell them on the open market.

              1. I like it.

              2. Release the Kochtopus!!!

      2. Logan’s fucking Run, people.

        Go and do likewise.

  10. (Selling tobacco tax free ) “This is a cost to governments…”

    No, it fucking isn’t.

    1. Not giving is stealing.

      1. Not stealing is losing.

    2. In their minds, when someone doesn’t give them something, that’s the same as being stolen from.

      1. “Those resources are essential to offsetting the deficit!”

      2. True.

        This is the mentality of a sociopathic thief: It is owed to them.

        Most thieves understand that what they are doing is wrong and try to hide it. They may curse under their breath if they fail in a theft. Government agents, when they fail at a theft, are incensed and criminalize anyone who does not submit to confiscation.

    3. In the case of any country with a socialized healthcare system, free tobacco access leads to increased use, which leads to greater costs for the healthcare system. That’s the real ‘cost’ to the government. We get slaved to bullshit systems and have to have our behaviour changed to ‘fix’ them.

      1. In the case of any country with a socialized healthcare system, free tobacco access leads to increased use, which leads to greater costs for the healthcare system.

        Actually, if you really look at the numbers, smokers die earlier and save the health system money. Economically the government should be passing out free smokes in junior high school.

  11. Uh, no shit. Taxes and banning things do not stop people from producing/selling/buying them because *news flash* PEOPLE WANT THEM.

  12. It’s not like British high taxes have ever led to smuggling before:

  13. some 50 billion dollars of the stuff is carried across borders and sold, tax-free, every year around the world. That is a cost to governments

    Not being successful at stealing is a “cost”? What a profoundly statist wording.

Please to post comments

Comments are closed.