The Tobacco Industry and Tax

This page was last edited on at

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:

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

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.

References

  1. World Health Organization, The economic and health benefits of tobacco taxation, July 2015
  2. G.E. Guindon, P. Driezen, F.J. Chaloupka, et al. Cigarette tax avoidance and evasion: findings from the International Tobacco Control Policy Evaluation (ITC) Project, Tobacco Control, 2014;23:i13-i22, doi 10.1136/tobaccocontrol-2013-051074
  3. abS.Vermeulan, M. Dillen, R. Branston, Big Tobacco, Big Avoidance, The Investigative Desk, 4 November 2020. Available from the University of Bath website
  4. abSTOP, Big Tobacco, Big Avoidance, brief, November 2020. Available from exposetobacco.org
  5. Tax Justice Network, How British American Tobacco avoids taxes in low and middle income countries, April 2019, accessed October 2021
  6. abR.M. Iglesias, B. Gomis, N. Carrillo Botero, P. Shepherd, K. Lee, From transit hub to major supplier of illicit cigarettes to Argentina and Brazil: the changing role of domestic production and transnational tobacco companies in Paraguay between 1960 and 2003Globalization and Health, 2018, 14(111), doi:10.1186/s12992-018-0413-2
  7. abInternational Consortium of Investigative Journalists, Big tobacco smuggling, 2001
  8. A.B. Gilmore, A.W.A. Gallagher, Tobacco industry’s elaborate attempts to control a global track and trace system and fundamentally undermine the Illicit Trade Protocol, Tobacco Control, 2019;28:127-140, doi:10.1136/tobaccocontrol-2017-054191
  9. A.K. Down, CENOZO, G. Sawadogo, T. Stocks, British American Tobacco Fights Dirty in West Africa, OCCRP, 26 February 2021, accessed April 2022
  10. A.K. Down, G.B. Sawadogo, T. Stocks, R. Guidiguoro, K. Mangal, Marlboro’s Man: Philip Morris’ Representative in Burkina Faso is a Known Cigarette Smuggler, OCCRP, 26 February 2021, accessed April 2022
  11. Troubles With Big Tobacco, OCCRP, 1 November 2020, accessed April 2022
  12. B. Gomis, A. Rowell, Turning a Blind Eye: BAT’s Potential Complicity in Illicit Trade in Southern Africa, STOP Industry Brief, October 2021. Available from BAT Uncovered website.
  13. abWorld Health Organization, Tobacco Tax Policy and Administration, Technical Manual, 2021
Go to Homepage