Report: Cigarette Tax Hike Caused 'Proliferation of Contraband' in Mexico

Higher cigarette taxes are to blame for a boom in illegal tobacco sales and the “proliferation of contraband” in Mexico, an industrial group says.

The Mexican organization Concamin says that 17 percent of cigarettes sold in Mexico are illegal, and the sale of illegal cigarettes in the country has reached a record high.

In 2011, Mexico increased its cigarette tax — a step the World Health Organization (WHO) has urged countries to take and which the body says will provoke a reduction in smoking based on “best practice” data obtained from countries party to a little-known treaty known as the Framework Convention on Tobacco Control (FCTC), which seeks to set global rules discouraging tobacco use. 

As noted by the Philippine Star, reporting on an ongoing debate about vastly increasing the rate of tobacco tax in the island nation, “the WHO technical manual on tobacco tax administration recommends setting tobacco excise tax levels to at least 70 percent of retail prices” in order to drive down the number of smokers and make tobacco less appealing to younger and poorer would-be smokers.

But Concamin’s study suggests that rather than provoking a reduction in smoking and discouraging younger and poorer smokers from taking up the habit, in Mexico, higher cigarette taxes have instead stimulated the black market for cigarettes in a country where criminal activity surrounding controlled substances remains a major concern. Low-income males in the Northwest (the US border region) and South of the country are especially likely to purchase contraband cigarettes.

The study’s results will come as little surprise to residents of Chicago, New York and Rhode Island, where illicit sales of untaxed cigarettes have long been common due to smokers’ desire to avoid paying taxes that bring the cost of a pack of premium-brand cigarettes to over $10 per pack in Manhattan.

Cigarette tax proponents continue to advocate for tax increases that would “improve public health” while providing more revenue for state, national, or even (in the case of the WHO) international spending items. 

In addition to pressing for the increase of cigarette taxes in the Philippines, the WHO also recently pushed China to increase its cigarette tax. The WHO also is pushing a “Solidarity Tobacco Contribution,” which would reportedly be used to fund WHO activities. 

Meanwhile, domestically, proponents of higher cigarette taxes continue to push their proposals in states including California, Georgia, Massachussetts and Maryland, arguing that higher taxes would mean both healthier citizens and more revenue.

As the Mexico example indicates, however, public health gains are likely to prove fleeting when tobacco consumption merely shifts from “legal” to “illegal.” Moreover, while some governments (including Mexico’s) have derived more revenue from tobacco tax hikes, so do criminals involved in smuggling and illicit sales. In countries and states where criminal gang activity remains a major concern, that is another reason opponents say proposed cigarette tax increases should be treated with caution.