Tobacco tax avoidance and tax evasion. In NCI Tobacco Control Monograph Series 21: The economics of tobacco and tobacco control. pp 511-518
Abstract
Activities aimed at circumventing taxes for tobacco products through licit (tax avoidance) and illicit (tax evasion) channels undermine the effectiveness of tobacco control policies. Extensive tax avoidance and evasion diminish, but do not eliminate, the degree to which significantly higher tobacco taxes can reduce tobacco use and increase government revenues. Tax avoidance and evasion activities can weaken the impact of pictorial health warning labels and other pack markings, bans on the use of various product descriptors, and other forms of product regulation by increasing the availability of tobacco products not subject to these policies. Tax avoidance and evasion can also reduce the effectiveness of policies restricting youth access to tobacco products.
Individual tobacco users, small-scale operators, large crime syndicates, and, at times, the tobacco companies themselves have engaged in a variety of tax avoidance and tax evasion activities. Because these actors may have a stake in keeping their tax avoidance or tax evasion secret, it is often difficult to assess the extent to which these activities take place. Tobacco companies have argued that high tobacco taxes are the primary cause of tax avoidance and tax evasion and that governments that raise taxes will increase the level of tax avoidance and tax evasion, potentially decreasing revenues collected. However, research demonstrates that many factors besides tobacco taxes are of equal or greater importance in determining the level of tax evasion, and that governments can raise taxes and at the same time effectively decrease tax evasion. Governments have adopted various strategies to limit tax avoidance and tax evasion and have strengthened enforcement efforts and increased penalties to curb tax evasion. While these efforts have had some success, considerable work remains to be done.
Article 15 of the World Health Organization (WHO) Framework Convention on Tobacco Control (WHO FCTC) obliges Parties to control illicit trade in tobacco products. As will be described in this chapter, illicit trade in tobacco products is now the subject of its own international treaty. The WHO FCTC Protocol to Eliminate the Illicit Trade in Tobacco Products (ITP), adopted in November 2012 and ratified by 24 countries (as of October 2016), aims to eliminate all forms of illicit trade in tobacco products by using a combination of national measures and international cooperation.
