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Posted on October 1st, 2012, by

If Christopher Columbus knew that consequences of his at first sight innocuous action would have such grandiose scales, he would probably beware of importing tobacco into Europe. But it’s a done deal. Tobacco began to spread around the world with the speed of thought, winning foreign countries, cities, and markets easy and quickly. It seems that there isn’t salvation from the addiction to smoke a cigarette.

But by the third millennium the decision was found; it includes the prohibition of smoking in public places, prevention of the sale tobacco to children, and holding large-scale anti-tobacco campaigns. And this struggle continues even now.

Cigarette tax does not have any prominent opponent among financial theorists. Tobacco in no way can be attributed to the articles of prime necessity. In medical science harm of tobacco to human health is established clearly enough, and nobody succeeded to prove a benefit from the tobacco consumption.

Cigarette tax became the part of almost all tax systems, and it is possible to say that this tax is one of the most correct. Consumption of tobacco is always definite luxury from which man can refuse without damaging his health and income, but meantime, it is strongly widespread. It’s hard to replace a tobacco some other substitutes. All this facts makes tobacco the very good object of tax. Cigarette tax is produced according to the different systems, and the technique of tobacco tax is already well developed.

The taxes topic is very popular, especially during the financial crisis. The governments of 50 states have already enacted taxes on cigarettes and most of them have raised them several times. Governments will be able to accomplish two main aims. The first one is the decrease of amount of smoking people. They’re sure that the high price of this product makes smoking citizens to quit this harmful habit. The second habit is raising the income of the state. Cigarette tax like every tax has to enrich the state treasury. Definite part of this income should be spent on social programs.

European Commission suggested the increasing of cigarette taxes for the purpose of smoking control. Brussels put the aim to decrease the level of smoking people to 10 percent during next 5 years. Now taxes in European Union are at least €64 for 1 000 cigarettes. European Commission suggests rising to €90 till 2014.

Increasing cigarette taxes is a WIN, WIN, WIN solution for governments a health win that reduces smoking and saves lives; a financial win that raises revenue and reduces health care costs; and a political win that is popular with the public. Since January 1, 2002, 44 states and the District of Columbia have increased cigarette taxes, raising the average state cigarette tax from 43.4 cents to $1.184 a pack.(Campaign for Tobacco-free Kids)

Advantage #1. As practice shows, increasing of cigarette taxes is one of the most effective methods to prevent and reduce smoking among adults and children. Every ten percent of increasing in price provides about seven percent youth who decides to quit this harmful habit, and general cigarette consumption about four percent.

Philip Morris: It is clear that price has a pronounced effect on the smoking prevalence of teenagers, and that the goals of reducing teenage smoking and balancing the budget would both be served by increasing the Federal excise tax on cigarettes.

Advantage #2. Every state which has increased cigarette tax in such way can increase its income. This profit will help each state to balance its budget and spend more money on health care and educatiing system, and tobacco prevention programs. Cigarette taxes are really able to increase the state treasury despite of all arguments of tobacco producing companies.

Research studies have also found that:

  • The increase of prices and taxes most of all reduce smoking among males, Blacks, Hispanics, and lower-income smokers.
  • Cigarette taxes reduce the amount of smoking people among pregnant women, preventing thousands of spontaneous abortions, still-born births and tens thousands newborns from suffering from smoking-affected births and other health consequences.
  • The increase of prices on cigars reduces the amount of people who smoke different kinds of cigars.

Actually, some of these decreases of cigarette consumption can be referred to social conditions; most of people wouldn’t notice reducing of smoking as cause for dissatisfaction. The second point which is able to influence on the ability of the state to get profit is unwillingness of smoking part of population to pay these taxes. But what main negative side do these taxes have? Naturally, there are a lot of examples proving that the rise of taxes became the reason of strengthening of so called black market.

The answer is obvious: similar devices are advantageous for producers, as they will get the money in any case, legally or illegally. Moreover, if cigarettes are excluded by a custom and destroyed due to a taxpayer, companies have a chance to increase a production: contrabandists, probably, will want to fill in losses and will order the replacement. Another interesting supervision of the English specialists the level of contraband is higher, the pressure on a government on purpose to restrain or diminish tobacco taxes becomes stronger. It is clear: lobbyism requires a financial support, and contraband is simultaneously the money source and weighty argument for the supporters of fiscal liberalism.

The amount of tobacco smuggling can be defined calculating the difference between the international export and international import; most of disappearing cigarettes are sold exactly in contraband ways. The amount of cigarettes, producing in the world, is known sufficiently exact, and because cigarettes aren’t kept for a long time, the world production practically coincides with world consumption.

Thus, the world import must be approximately equal to the export. However, during many years tobacco import is lower than export.

Annually smuggling of tobacco makes the billions damage to the budgets of European countries, which do not get the fixed profits. There is another reason why contraband becomes a serious threat to the health of society. Contraband cigarettes are sold at the lower price; thus, cigarettes become cheap, that promotes the consumption and undermines the efforts on prevention of smoking among youth.  Contraband offers well-known international sorts of cigarettes on prices, which are accessible even for people with low profits and for the young people, who especially take care of their image in developing countries, where western goods are considered especially refined and stylish. Because a third of annual world export is the share of smuggling, it results in large growth of morbidity, especially in poor countries.

Chinese government presently studies a question about possibility of increase of cigarette taxes from 0.06 yuan ($0,009) to 1 yuan ($0.15) for a pack. As specialists counted up from the Chinese Association against Smoking, introduction of such tax will force to reduce smoking about 13.7 million people, and will help to save 3.4 million lives, and the profit of the state from taxes will grow on 64.9 milliards yuan ($9.54 billion). It is noticed in a report that in perspective the government must consider question about cigarette taxes to exceed 60 percent from the suggested retail price.

The associations of medical workers from more than hundred world countries called the governments to conclude a new international treaty against smoking. About ten million doctors from around the world call to raise cigarette taxes, forbid cigarette advertising, and also acknowledge all tobacco companies’ statements, that some brands of cigarettes are less harmful, illegal. According to the representative of the World Association of Physicians, Dr. Delon Human, these measures every year will help to prevent about five million deaths because of illnesses, related to smoking. World Organization of Health Protection discusses the prospects of making of an international treaty about a campaign against smoking.

In my essay I tried to analyze the cigarette taxes from the economic point of view. As we can see, unfortunately, this harmful habit became an integral part of our life, and the slightest changes in legislation concerning tobacco, can provoke different reactions in society. On the one hand, raising of cigarette taxes can decrease the amount of smoking people and enrich the state treasury, but on the other hand these measures can strengthen the black market and brake the economy balance in the country.

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