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Thursday, June 29, 2023

Tax Cut 38, My paper in 2021 about tobacco taxes and smuggling

This is my paper in 2021 published by Tholos Foundation in the US.


It's 65 pages long but the body is only 18 pages. The rest are annex news reports on smuggling, 2017-2021. Here are some tables in my paper.





VI. Conclusions and Recommendations

As clearly demonstrated, the higher the taxes the more illegal tobacco trade, leaving consumers in more jeopardy. Laws that over-tax, even prohibit legal tobacco will encourage and generate illegal tobacco. In this situation, the losers are (a) government finance department or ministry with lower than potential revenues, (b) legal tobacco companies with lower revenues, and (c) consumers who are tempted to patronize cheaper but illegal cigarettes.

The winners are (a) corrupt government officials who allow and protect smuggling in exchange for high monetary rewards, and (b) criminal gangs and terrorist groups engaged in this and related activities. And overall corruption in government increases, not decreases.

Going back to the three quotes at the opening page of this paper, the reworded Newtonian 3rd law of motion by von Mises and this author – for every government intervention and taxation, there is an equal opposite distortion – is confirmed.

If Cong. Joey Salceda’s estimate of P30 B/year illegal tobacco in the country is correct, then the reported estimate of P16 to P20 B/year in foregone taxes is also correct. That is equivalent to the full year budget of the Department of Trade and Industry (DTI) or Department of Foreign Affairs (DFA) in 2020.

Instead of introducing another round of higher tobacco tax, Congress and the Executive would benefit from strictly implementing the existing tax laws and plug loopholes. To this end, controlling the proliferation of smuggled and other illicit products would go a long way. This will achieve three goals (a) increase government revenues, (b) decrease corruption in government, and (c) deprive funding for criminals and terrorist groups.
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