The New Year’s Day VAT hike will trigger a surge in tobacco smuggling and cause revenue to flood into the black market, the Tobacco Manufacturers’ Association (TMA), has claimed.
Christopher Ogden, chief executive of the TMA, said: “Independent research presented to the Treasury in October predicts smuggling will increase by 15% and up to an additional £300 million in revenue will be lost to the illegal market as a result of this tax increase.
“In spite of this evidence, the government has decided to allow this potentially disastrous tax hike.”
“When VAT was reduced in December 2008, tobacco and alcohol excise duties were increased to leave prices broadly unchanged.
“However, when VAT returns to 17.5% on New Year’s Day, there will not be a compensatory reduction in these excise duties. So this is not just a VAT increase, it is effectively a tax on a tax.
“As a result, the price of a pack of 20 cigarettes will rise by up to 18 pence, the largest single increase in ten years. We are extremely worried that this “stealth tax” will increase tobacco smuggling and organised crime, especially against a backdrop of rising unemployment and falling incomes, and the independent research supports this view.”
