Since the German government increased the tax on tobacco, the industry has seen a drop in business as smokers turn to cheaper products. That could prove a boon for cigarette smugglers.
Germans still pay less to smoke than other Europeans
The German government expected to collect around €1.8 billion ($2.2 billion) more for 2004 thanks to the last stage in the tax increase on tobacco products that went into effect in April.
But now the finance ministry has revised its figures, forecasting it will only acquire €1 billion more. In the first quarter of the year, the government earned €220 million less from tobacco tax than it had over the same period in 2003, 6 percent less than they had expected.
Smokers seem to be resisting the tax hike. "Instead of high-quality cigarettes, consumers are buying cheaper tobacco products such as rolling tobacco," Rüdiger Parsche, head of the Public Finance Department at the Ifo Institute for Economic Research, told DW-WORLD.
Peter Lind, managing director of the German tobacco wholesalers' association BDTA, confirmed that smokers are now rolling their own cigarettes. "In April 2004 … factory cigarette producers' deliveries collapsed by around 25 percent," Lind said. "This year alone tax losses can be expected to amount to €1 billion," he added.
€7 per pack
Cigarette smugglers' trade has so far been focused elsewhere in Europe.
A German customs official removes smuggled cigarette cartons from a car at the German-Polish border
In the mid-1990s, the British government introduced a high tax increase on tobacco products. A pack of cigarettes costs around €7 there, twice the price of a pack in Germany. Now it's even more lucrative to sell contraband cigarettes in Britain than it is to sell marijuana there, Ken Simcox, chairman of the UK's National Association of Cigarette Machine Operators said. Simcox estimated that 22 percent of the cigarettes on the English market came from smugglers.
"So far Hamburg is mainly a transit station. Around 80 percent of the smuggled cigarettes confiscated here are intended for the English market," Robert Dütsch from the Hamburg customs office said. But experts like Parsche from the Ifo Institute reckon that the German demand for smuggled cigarettes will grow.
He said the tax hike wouldn't necessarily cause people to smoke less or quit. "(Smokers') restraint only lasted a short time after the previous tax increases." In time, cigarette consumption returned to the habitual level. However, smokers were likely to switch to cheaper products, Parsche added.
And whether they roll their own or buy contraband, the German government will continue to take in less revenue than it had expected.