The Tobacco Industry and Tax
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The Tobacco Industry and Tax, Tobacco Tactics, updated 17 May 2022, accessed 15 April 2024.
Background
Taxation on tobacco products is by far the most effective – and cost-effective – public health measure to reduce tobacco consumption.1 Consequently, the tobacco industry has a vested interest in undermining tax measures, and a history of tax-related interference.
The tobacco industry uses a range of tactics to interfere with and undermine policies aimed at protecting public health. The use of legal challenges, direct lobbying and indirect interference via third parties are well documented. In addition, companies have developed multiple, often sophisticated, ways to avoid paying taxes to governments and maintain their profits.
Tax Avoidance
Research from 2014, published as part of the International Tobacco Control (ITC) policy evaluation project, found that tobacco companies have reduced their tax liability by stockpiling and repositioning their products.2
Work by the Investigative Desk, with TCRG researchers (2020), exposed many more tactics used by transnational companies include shifting dividends; notional interest deduction; profit shifting; royalty payments; and group relief.34 Using specific financial practices they are able to reduce their tax contributions, including in lower income countries where governance is weak or there is a risk of corruption.345
Companies making huge profits selling tobacco products across the globe, including BAT and PMI, are able to avoid paying tax with the help of networks of UK based subsidiaries. Some of these subsidiaries are “based in areas with opaque tax regimes and secretive financial systems”.
For more information read the following reports by the Investigative desk/Bath TCRG:
- Big Tobacco, Big Avoidance,
- Big Tobacco, Big Avoidance: How subsidiaries can help the global tobacco industry avoid tax
- Big Tobacco, Big Avoidance: What role do BAT’s UK subsidiaries play in facilitating tax avoidance?
- Big Tobacco, Big Avoidance: PMI’s questionable financial flows
Tax Evasion & Illicit Trade
As well as the unethical use of tax avoidance, major transnational tobacco companies have also been found to be directly involved or complicit in illegal practices. This notably includes the illicit tobacco trade. Internal industry documents show how BAT and PMI in particular relied on smuggling their own products from the 1960s onwards.67 They did this in order to evade taxes, enter new markets, maintain and increase market share, circumvent tobacco control and trade protection measures, and undermine the rule of law.67 Since then evidence indicates that transnational tobacco companies have continued to be complicit in illicit trade.89101112
Tobacco Industry Arguments Against Taxation
In order to prevent countries from adopting any major tobacco tax reform, the industry repeatedly, and successfully, uses arguments which exploit concerns around the political economy of taxation.
Those concerns have been summarized by the WHO as the SCARE tactics:13
S Smuggling and illicit trade
C Court and legal challenges
A Anti-poor rhetoric or regressivity
R Revenue reduction
E Employment impact
As experience from multiple countries shows, most of these arguments are unsubstantiated and exaggerated.13
See examples of arguments against tax used by the tobacco industry in the UK.
Price and Tax
Taxes only work to reduce consumption if they are passed on in the form of higher prices to smokers. Tobacco companies use price as a key part of their marketing strategies.
Read more on the pages on Price and Tax and Tobacco Industry Pricing Strategies
Relevant Links
- Tobacconomics, based at the University of Illinois at, produces a cigarette Tax Scorecard on tax policy performance in 160 countries.
- See also the World Health Organization (WHO) web pages on Taxation.
- For countries that are parties to the Framework Convention on Tobacco Control (FCTC) progress against Article 6 on price and tax is detailed in the FCTC implementation database.
- For up to date information on tobacco regulation, see the Tobacco Control Laws website, published by the Campaign for Tobacco Free Kids (CTFK).
TobaccoTactics Resources
TCRG Research
Big Tobacco, Big Avoidance, S.Vermeulan, M. Dillen, R. Branston, The Investigative Desk, 4 November 2020. Available from the University of Bath website
Industry profits continue to drive the tobacco epidemic: A new endgame for tobacco control?, R. Branston, Tobacco Prevention & Cessation, 2021;7(June):45, doi:10.18332/tpc/138232
For a comprehensive list of all TCRG publications, including research that evaluates the impact of public health policy, go to TCRG publications.
