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The Irish tobacco industry position on price increases on tobacco products
  1. Fenton Howell
  1. Correspondence to Dr Fenton Howell, ASH Ireland, Denshaw House, 120-121 Baggot Street Lower, Dublin 2, Ireland; fentonhowell{at}eircom.net

Abstract

Objective To examine what the tobacco industry in Ireland says to government on tobacco price, and what it does.

Methods The annual government budgetary and tobacco trade, tax/price increases on cigarettes (2000–2010) and pre-budget submissions from the tobacco industry were analysed.

Results Price increased from €4.77 in 2000 to €8.55 at the end of 2010, 64.0% of the increase was government imposed and 36.0% was imposed by the tobacco trade. The tobacco industry consistently urged government not to increase taxes as this would increase smuggling and contraband tobacco products. However, the tobacco industry increased price every year.

Conclusion There is significant disparity in what the tobacco industry says to government and how it behaves with respect to tobacco price. It is important that tobacco control advocates have access to such data and underscores the importance of strong guidelines for Article 5.3 of the Framework Convention on Tobacco Control.

  • Tobacco industry
  • price
  • advocacy
  • public policy
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Introduction

The importance and effectiveness of tax and price policies in tobacco control has been clearly shown.1 The main dissenter to such policies is the tobacco industry. However, despite its rhetoric on this issue, the tobacco industry is itself not averse to increasing the price of tobacco products in order to maintain profits despite declining sales.2 ,3 While there is awareness concerning some aspects of tobacco industry lobbying,4 little is known as to what arguments the tobacco industry makes when lobbying governments concerning potential tax increases on tobacco products by virtue of the secrecy that usually surrounds such lobbying. This study was carried out to examine what the tobacco industry in Ireland says to the government regarding tobacco taxes and what it does with respect to the price.

Methods

The annual government budgetary, and tobacco trade, tax/price increases on the most popular priced category of 20 filter tipped cigarettes were obtained from parliamentary questions answered by Ireland's minister for finance. Data were obtained for the period 1 December 2000 to the end of November 2010 for the annual budgetary period. Ireland's budget typically occurs in early December. Under current European Union and Irish law, the excise duty levied on cigarettes must be a mixture of specific and ad valorem elements. The specific component of this must represent between 5% and 55% of the total tax (excise plus value added tax (VAT)) as a percentage of the retail price and the total tax burden of excise duty (specific + ad valorem) must amount to at least 57% of the price. VAT is also charged on the selling price. A trade increase includes VAT and ad valorem at the applicable rates.

Using the Freedom of Information Act, the Department of Finance in Ireland was asked to provide the annual pre-budget submissions from the tobacco industry for the years 2000 to 2009 inclusive. The author analysed the tobacco industry submissions and identified the key themes emerging from them.

Results

The price of the most popular priced category of 20 filter tipped cigarettes increased from €4.77 (specific tax €2.07 (43.4%), ad valorem €0.90 (18.9%), VAT €0.80 (16.7%), trade content €1.00 (21.0%)) on the 1 December 2000 to €8.55 (specific tax €3.67 (42.9%), ad valorem €1.56 (18.2%), VAT €1.48 (17.4%), trade content €1.84 (21.5%)) at the end of November 2010, an increase of €3.78 or 79.2%. Figure 1 outlines the trends in taxes and prices over time. Of the €3.78 increase, €2.42 (64.0%) was government increased taxes via the annual budgetary statement and the remaining €1.36 (36.0%) was imposed by the tobacco trade. Table 1 shows the annual increase by each party over the period. In three of the years the government did not increase tobacco taxes (2000, 2004, 2005) in their annual budget. The tobacco trade increased the price every year. On two occasions when government did increase taxes (2001, 2009), the tobacco trade increased the price by an even greater margin.

Figure 1

Annual trends in taxes and retail prices, in cents, over time.

Table 1

Government and tobacco industry tax/price increases, and key themes emerging from tobacco industry lobbying submissions, Ireland, 2000–2009

The Department of Finance provided the author with pre-budget submissions prepared by the tobacco industry for each of the years under study. These included letters or documents outlining the tobacco industry's position on price increases and related tobacco matters, or copies of presentations made directly in person to the Minister for Finance and his officials.

For each of the years in the study, submissions were made by the Irish Tobacco Manufacturer's Advisory Committee (ITMAC). The ITMAC is an unincorporated trade association which represents its constituent members: Gallaher (Dublin) Limited (parent company—Japan Tobacco Inc); John Player and Sons Limited (parent company—Imperial Tobacco Group) and PJ Carroll and Company Limited (parent company—British American Tobacco Group). These companies manufacture or distribute some 98% of all tobacco products sold legally on the domestic market in Ireland.

Table 1 outlines the key themes that emerged from tobacco industry submissions for each year. The three predominant themes emerging throughout the period were that: increasing taxes would increase the illegal trade, Ireland's taxes on tobacco are among the highest in the world and that government should not increase taxes in the forthcoming budget.

From 2000 to 2007, the tobacco industry consistently focused on the situation in the UK where they maintained that the UK tobacco tax policy had led to the huge illicit trade problem therein and that if Ireland followed the UK example of a high tobacco tax policy it would suffer the same illegal trade problem. That was contrasted with the so-called windfall benefit that Ireland was getting in the earlier years from having a lower price than in Northern Ireland (part of the UK), which facilitated cross border shopping to the benefit of the Irish economy.

However, as Irish tobacco prices increased the tobacco industry focused on the potential negative impact that cross border trade would have on government revenues. As the European Union enlarged, workers from lower income countries came to work in Ireland bringing with them large amounts of tobacco as they move from home to Ireland and back again. In addition, more Irish people were travelling abroad on holidays and returning with large amounts of tobacco from lower priced countries. Towards the latter end of the period, the tobacco industry consistently provided data, collected and collated by the tobacco industry, on the apparent extent of the illicit trade in Ireland, both in terms of smuggled cigarettes and in terms of the presence of contraband cigarettes. These data items formed a significant part of its submissions in the most recent years as it estimated that the illegal trade increased from about 13% in 2006 to 20% in 2009, in contrast to government estimates of 14% in 2009.

In addition, throughout the years involved, the tobacco industry occasionally dealt with issues such as the impact of tobacco tax increases on: inflation, poorer smokers, the legitimate trade and sales to minors (as illegal traders would not ask for proof of age).

The tobacco industry was also consistent throughout the period as to how it commented on previous tax increases by the government. It was never highly critical; rather it expressed disappointment when it did mention it in its pre-budget submissions. Of note was the complete absence of any reference to the price increases that it imposed on tobacco products. However, most strikingly, in its 2009 submission, which was far the strongest in terms of arguing for no tax increases on tobacco products it stated ‘Sadly, being the highest priced country in the EU for tobacco products, Ireland is already regarded as a paradise for tobacco smugglers. According to our estimates, one in every five cigarettes smoked in Ireland—that's 20 percent of the market—is accounted for by product on which no Irish duty is paid…in our view, every cent that is added to the price of a packet of cigarettes will only drive these figures upwards to a point where in the next 1–2 years, we believe some 25% of the market will be accounted for by non Irish duty paid product. It is an unhappy equation which we all must take note of if ordinary, law abiding smokers are not to be driven into the hands of criminals in even greater numbers than at present.'

Subsequently, in the following fiscal year (December 2009–November 2010) the government did increase tax by 21.5 cents, the tobacco industry, despite its protestations in its pre-budget submissions increased price by a further 23.5 cents.

Discussion

This study brings together two important aspects of tobacco industry behaviour: what they say and what they do, and highlights the hypocrisy therein. Despite their strident lobbying to government not to increase taxes on tobacco products for all sorts of reasons, they persistently raised tobacco prices themselves. Indeed one could argue that they lobbied government from increasing taxes so that they could in turn increase price even further to maximise its own profits. In essence it was trying to scare the Minister for Finance into not raising tobacco taxes.

Such behaviour by the tobacco industry lends considerable support to the call from Gilmore et al to place a cap on the price that the tobacco industry can charge for its products.2 It also sends a signal to the government, that in the absence of a government-induced price rise through taxes, the tobacco industry will exploit that position to maximise its own profits at the expense of government revenue. Although price rises by the tobacco industry do feed into government revenue via the taxation process, the tax take for the state would be much greater if all of the price rises were due to tax increases.

This study shows that despite the lack of transparency from the tobacco industry concerning its approaches to the government, it is still possible to get that information and place it in the public domain. Obtaining such information should help tobacco control advocates, journalists and politicians understand and be in a position to counter tobacco industry positions on price. Knowing your enemy is a key tenet for successful public health advocacy.5 In essence, this sort of information should be available in every country. Hence the importance in ensuring that guidelines for Article 5.3 of the Framework Convention on Tobacco Control which states that ‘Parties should ensure that any interaction with the tobacco industry on matters related to tobacco control or public health is accountable and transparent’6 are adhered to.

What this paper adds

This study compares tobacco industry rhetoric and behaviour with respect to tobacco prices in Ireland. Despite pleading with government not to increase tobacco taxes, the tobacco industry increases price at every opportunity. It is important that the guidelines for Article 5.3 of the Framework Convention on Tobacco control are sufficiently strong so as to allow this type of analysis in other countries.

References

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Footnotes

  • Competing interests None.

  • Provenance and peer review Not commissioned; externally peer reviewed.

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