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Tobacco Levy

With monopoly style profits still available in the UK for the two major players, Imperial and Japan Tobacco (Gallaher), the new consultation on  a tobacco levy from the Treasury is a welcome development.  The levy aims to tax the companies based on market share, in order for government to recover more of the costs on society imposed by the companies who benefit financially from the harms they cause.

The levy would be payable on profits after tax, so is likely to hit shareholders rather than individual smokers, on a polluter pays principle.  If companies seek to pass on the tax cost to consumers through price rises, then sales will fall to some degree, though to what extent that will hit profits remains to be seen. In high tax jurisdictions to date tobacco companies have been able to benefit from the ability to raise their own margins, hiding their own price increases behind government duty and sales tax increases.  Smokers tends to blame the government for the relatively high price of tobacco, not realising, for example, that the UK is one of the most profitable markets for the industry.

If implemented and seen to be successful, this measure is likely to be adopted in other jurisdictions, as successful tobacco control policy measures are adopted through a process of rapid policy learning across the world facilitated by the Framework Convention on Tobacco Control.

It seems that finally government has realised that in tackling tobacco, you have to follow the money, not to the addicted consumers, but to the ultimate beneficiaries, the shareholders of the companies.  Whether this particular measure, if implemented, will be sufficient remains to be seen.  Of more importance is that this is a fundamental change of approach with potential to hit the industry hard where it hurts.

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