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Tax on cigarettes is a fool's game

Published 28/12/2015

A RECENT newspaper report: "[Cigarette] smuggling is big business and leads to significant tax losses for countries. The European Commission estimates revenue losses of €10bn (£7.2bn) a year." I would dispute this.

If we accept the proposition that the production of things which are injurious to people should not be classed as wealth-creation and of positive value, because there is no advantage accruing to anyone from the use of the product and, because there is no worthwhile outcome, the actual process of their manufacture destroys existing wealth, it is reasonable to conclude that one cannot tax tobacco products. There is nothing there of meaningful value to tax.

What is really happening is that governments are using the tax revenue from the sale of tobacco as a means - a currency conduit - to tax the real pool of wealth produced by beneficial activities elsewhere.

Economists do not appear to understand that you cannot get good from bad and cannot fund beneficial public services from the taxation of harmful merchandise. Governments do, but it is an illusion.


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