Editor's Note: Drs. Lee and Chen provide data on the effects of price and smoking characteristics and their relationship to smuggled cigarettes in Taiwan. Smuggled cigarette smoking increased for each NT$1 increase in the price of legal cigarettes.
Globally, cigarette smuggling as a percent of consumption varies widely. In Israel, it is estimated that 44% of the cigarettes are smuggled (1999 WHO). In Hungary, the rate is 9% and in Egypt it is slightly above 1%. Researchers estimate that 30% of the internationally exported cigarettes (about 355 billion cigarettes) are lost to smuggling.
This trend is seen globally, both in the developed and developing world. Cigarette taxes are often used to plug holes in budgets at all levels of government. Here in my home state of New Jersey, for instance, the newly proposed tax for July 2006 on a pack of cigarettes is $2.75, up from the current $2.40 USD per pack.
Initially, state and federal governments benefited from the increased revenue, and we saw the desired decrease in cigarette consumption. But over time, sales of legal cigarettes decreased and illegal cigarettes were smuggled into the higher tax states for resale.
A report from Tobacco Free Kids estimates that approximately one-quarter of all legally exported cigarettes end up smuggled across international borders.
The World Bank (Joossens, 1999; De Beyer, 2002) has identified countries with high and low smuggling rates. Sweden, Denmark, Norway, France, Finland, and Ireland—all with high cigarette prices and taxes—are reported to have low smuggling rates (>5%). Countries with low cigarette prices and taxes are reported to have higher smuggling rates (>10%): Spain, Italy, Pakistan, Nigeria, Yugoslavia, Ukraine, Moldova, Columbia, Iran, Austria, and Cambodia.
Similar to the recommendations made by other researchers, the authors sanction better controls, forgery-proof tobacco tax stamps, and other regulatory systems. The task will be difficult given that we estimate overall smoking prevalence is still about 29% globally, with more than 82% of smokers belonging to low- and middle-income groups.