Tobacco Tax Assessment Mission: Review of Senate Hearings

On February 27, representatives of Philip Morris France, Japan Tobacco France, British American Tobacco France, Imperial Tobacco Seita and the President of the Confédération des buralistes were heard in the Senate as part of a Mission for the Evaluation and Control of Social Security devoted to behavioral taxation in the field of health. However, a number of arguments and elements developed do not correspond to the reality depicted by the scientific literature and public health data.

The health, social and fiscal effectiveness of tobacco tax increases

All the stakeholders interviewed highlighted the ineffectiveness of tax policies, both for health objectives, reduction of social inequalities, and tax revenues. According to the various speakers, this ineffectiveness would also be admitted by public data, such as those from Public Health France. However:

On health objectivesThe tax policy between 2017 and 2020 of the 10 euro packet resulted in a historic decline in daily smoking, going from 29.4% to 24% in France between 2016 and 2019.[i]. From 2020 onwards, the stagnation or even deterioration of the situation can be explained by the combined effects of the COVID-19 pandemic, periods of confinement, and the absence of a tax trajectory. As such, after a tax moratorium between 2020 and 2022, government policy was limited to indexing taxation to inflation, simply allowing the relative price of the packet not to decrease. The rest of the increases in the price of the packet are due to the price increase policies of tobacco manufacturers.[ii].Tax policy has also contributed to the massive decline in smoking among young people. Thus, in 2018, 21.5% of high school students declared themselves to be daily smokers, compared to 8.2% in 2022. Contrary to the assertions of the representative of Imperial Tobacco Seita, Santé publique France recalls in its Weekly Epidemiological Bulletin of 2023 that the increase in prices " has shown its effectiveness in reducing smoking initiation ".

On reducing inequalities. The data from Santé publique France are consistent with the rest of the scientific literature, showing that tax increases have a multiplied effectiveness among precarious categories. Thus, between 2016 and 2019, the tercile of the French population with the lowest income saw its smoking prevalence drop from 38.8% to 29.8%, while that of the tercile with the highest income decreased by less than three points (21% to 18.2%). Inequalities have increased since 2020, the year the tobacco tax policy ended.

Combined with better support for quitting, tax increases encourage working-class people to quit smoking and free up disposable income for them, which can be allocated to other expenditure items (food, education, etc.)[iii].

On tax revenues. Despite a slight decline observed in 2022, the data show a steady increase in tax revenues for over 20 years. Between 2003 and 2022, tax revenues associated with the sale of tobacco products increased by more than 50%. However, these revenues do not offset the health and environmental costs associated with smoking. It is also appropriate to mention that taxation on tobacco products is not part of a profitability logic, but of a public health logic, the objective of which is to reduce the human consequences caused by the activity of this sector (75,000 deaths per year and hundreds of thousands of sick people who weigh heavily on the health system).

Tobacco taxation and illicit trade: an update

Manufacturers' responsibility heard in international illicit trade. As this point was not raised during the hearings, it is important to mention that the involvement in the organisation of the illicit tobacco trade by all the manufacturers interviewed is a widely demonstrated fact.[iv]. These practices, taking place including in zones of armed conflict (West Africa)[v], are identified as major sources of regional destabilization, and sources of financing for ethnic militias, armed groups, international terrorism, or even weapons programs of states such as North Korea.[vi]. This involvement has also given rise to legal proceedings and historic sanctions ($635 million in 2023 against British American Tobacco). For this reason, the WHO Protocol to Eliminate Illicit Trade in Tobacco Products, ratified by France and the European Union, recalls the need to guarantee the full independence of the fight against illicit trade from the influence of the tobacco industry.[vii].

Industry's responsibility in cross-border trade. As recalled in a recent proposal by the Minister of Health and Prevention, Mr. VALLETOUX, then a member of parliament, the tobacco industry encourages cross-border trade through practices of massive oversupply of certain neighboring markets (Luxembourg, Andorra, etc.)[viii].

What is the estimate of parallel markets? ? The figures presented during this hearing indicate an "explosion" in illicit trade (40% of national consumption), and in particular counterfeiting. These data from the KPMG report, fully funded by Philip Morris France, are deemed inadmissible by the scientific literature.[ix]. The report is criticized for its lack of transparency, its methodological weaknesses, aimed at deliberately amplifying the reality of parallel markets. The KPMG firm itself, in the preamble to the said report, indicates that it has not " sought to establish the reliability of information sources »[x].

Particularly robust, the data from Santé publique France show that the French people's tobacco purchasing habits have been stable since at least 2014, despite the tax policies implemented since then. The share of purchases made in tobacconists' shops remains very much in the majority (around 80%), followed by that of cross-border purchases (14-15%). The share of illicit trade appears relatively limited: for example, tobacco purchases on the street were limited to 0.8% during the last survey (2022)[xi].

During his hearing, the representative of Japan Tobacco France mentioned that the lockdown in 2020 resulted in a 25% increase in sales in tobacco shops. In reality, INSEE shows that this increase was limited to 9.5%[xii]. Similarly, the 2021 Woerth-Park information report does not subscribe to the observation of an "explosion" of the parallel market, which it limits to between 14 and 17% of national consumption (legal and illegal components included)[xiii].

Counterfeiting and seizures - No independent study by the tobacco industry indicates an exponential development of counterfeiting. In the KPMG report, the distinction between products considered contraband and counterfeit is made by the manufacturers themselves. However, having a liability in the event of a significant presence of their products in seizures of illicit trade, manufacturers have a direct interest in assessing these products as counterfeit.

Finally, the evolution of tobacco seizures is not a good indicator for estimating the levels of parallel markets. First, two-thirds of these products seized on the territory were not intended for the French market. Then, the evolution of these seizures is primarily a function of the human and financial resources allocated to Customs for these operations.

No correlation between taxation and illicit tradeThere is no correlation between tax levels and levels of illicit trade.[xiv]. Other factors than price are much more decisive, such as the level of corruption in countries, the existence or not of a monitoring and traceability system strictly independent of the tobacco industry. This is not the case today with the European system. The share of parallel markets attributable in France mainly to cross-border purchases results directly from the practice of oversupplying border markets by manufacturers.

Finally, this correlation between price and illicit trade, supported by tobacco manufacturers, did not prevent them from agreeing on a coordinated increase in their prices (+50 cents at the start of 2024, in addition to indexation to inflation).

New products and taxation of new products

Heated tobacco is not a “reduced risk” product. The concept of "non-combustion products" creates confusion between products of very different natures. In particular, this term allows electronic cigarettes to be lumped together with heated tobacco as "reduced risk" solutions. However, while electronic cigarettes are undeniably less harmful than manufactured cigarettes, the same is not true for heated tobacco, the consumption of which only involves a "modified risk".[xv]. Furthermore, a German study from the end of 2023 estimates that the consumption of heated tobacco is at least as harmful as that of manufactured cigarettes, in terms of respiratory and vascular health.[xvi]. Furthermore, a literature review highlights that 69% of heated tobacco consumers are also smokers of conventional tobacco products, thus exposing themselves to an increased risk.[xvii].

It is worth adding that, structurally, the manufacturers' guarantee to reserve their heated tobacco products for adult smokers only cannot be guaranteed, since it would imply the planning by these players of their own economic death, mechanically caused by the non-replacement of their consumers. Experience shows in this respect that the manufacturers' marketing strategies incontestably target the younger generations.

The example of the United Kingdom – The experience of the United Kingdom was regularly cited by speakers to justify the need to encourage the development of these electronic cigarettes from a more general perspective of risk reduction. If the United Kingdom has indeed taken the side of encouraging electronic cigarettes as a cessation tool, this policy was preceded by a significant reduction in the prevalence of smoking, achieved by a tightening of tobacco regulations (plain packaging, increase in smoking bans, strong tax policy), and a real policy of support for smokers. It should also be noted that the average price of a packet has been around 18 euros since November 2023.

The lack of regulation in this area has contributed to the rapid and uncontrolled development of electronic cigarettes, creating a pediatric epidemic among the younger generations. Thus, for several months, the United Kingdom has been seeking to restrict access to electronic cigarettes, and is evaluating the possibility of taxing electronic cigarettes, restricting flavors, regulating packaging, strictly controlling the ban on sales to minors, etc.

Keywords: Senate, Taxation, Philip Morris, British American Tobacco, Japan Tobacco, Seita Imperial Tobacco, Illicit Trade, Parallel Markets

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FT

[i] Public Health France, Prevalence of smoking and vaping in metropolitan France in 2022 among 18-75 year-olds, May 31, 2023, (accessed February 28, 2024).

[ii] Customs, Retail price lists for manufactured tobacco, (accessed February 28, 2024).

[iii] v Furman, J., World Bank Conference: “Winning the Tax Wars: Global Solutions for Developing Countries”, Six Lessons from the US Experience with Tobacco Taxes, 05/24/2016, (accessed 02/28/2024)

[iv] OCCRP, British American Tobacco Fights Dirty In West Africa, February 26, 2021, consulted on 02/28/2024

[v] OCCRP, Marlboro's Man: Philip Morris' Representative in Burkina Faso is a Known Cigarette Smuggler, February 26, 2021, consulted on 02/28/2024

[vi] Tobacco-free generation, Record fine for British American Tobacco over illicit activities in North Korea, 04/28/2023, consulted on 02/28/2024

[vii] World Health Organization Protocol to Eliminate Illicit Trade in Tobacco Products, consulted on 02/28/2024

[viii] National Assembly, Bill to implement the World Health Organization protocol defining tobacco delivery quotas to prevent cigarette manufacturers from fueling parallel trade, 07/11/2023, consulted on 02/28/2024

[ix] Tobacco Tactics, KPMG, August 15, 2023, (accessed February 28, 2024).

[x] KPMG, Illicit cigarette consumption in the EU, UK, Norway and Switzerland, 2021, (accessed February 28, 2024)

[xi] Public Health France, Places of purchase of tobacco in France in 2021: results of the Public Health France Barometer, 2022, (accessed February 28, 2022)

[xii] INSEE, Foreign supplies represent at least 9.5% of tobacco sales in France, February 15, 2024, (accessed February 28, 2024)

[xiii] National Assembly, relating to the evolution of tobacco consumption and the yield of taxation applicable to tobacco products during confinement and the lessons that can be learned from it, September 29, 2021, (accessed February 28, 2024)

[xiv] L, Joossens, How Eliminating the Global Illicit Cigarette Trade Would Increase Tax Revenue and Save Lives, 2009, (accessed 28 February 2024)

[xv] Simonavicius E, McNeill A, Shahab L, et al, Heat-not-burn tobacco products: a systematic literature review, Tobacco Control 2019;28:582-594.

[xvi] Goebel I, Mohr T, Axt PN, Watz H, Trinkmann F, Weckmann M, Drömann D, Franzen KF, Impact of Heated Tobacco Products, E-Cigarettes, and Combustible Cigarettes on Small Airways and Arterial Stiffness. Toxics 2023,11,758.

[xvii] B. Dautzenberg, M.-D. Dautzenberg. Heated tobacco: systematic review of the literature. Respiratory Diseases Review, 2019, 36, pp.82 - 103. ff10.1016/j.rmr.2018.10.010ff. ffhal-03485625f