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Cigarette taxes

January 26, 2010

Germany lost at least four billion euros in 2008 on cigarettes that were smoked in the country but not taxed, a study shows. Smokers are opting to buy their tobacco abroad or even on the black market.

A cigarette in an ashtray
Smokers are changing their buying habits, the survey saidImage: Bilderbox

Germany lost out on at least four billion euros ($5.6 billion) worth of cigarette revenue in 2008 as smokers looked for ways to avoid hefty taxes, a study from the Hamburg World Economy Institute (HWWI) has found.

The number of cigarettes smoked in Germany without being taxed in the country has gone up from 16 percent three years ago to 20 percent, it said.

Smokers consumed a total of 23 billion such cigarettes, according to the figures, and the majority were purchased legitimately in other countries. But about seven billion cigarettes were obtained illegally, fueling fears that the trade may be boosting organized crime.

Signs of smuggling

The institute said price differences caused by high taxation allowed organized crime to thrive from trading in contraband. Signs of sophisticated smuggling operations similar to those in the United States, where different states have different tax rates, were now "recognizable" in Europe, according to the institute.

Cigarettes on the shelves in a shop
The price of cigarettes has gone up in recent yearsImage: AP

The trend comes as smokers try to dodge higher cigarette taxes introduced as a public health measure. Since the latest tax increase in February last year, a packet of cigarettes has cost about 4.50 euros - of which around 3.75 euros is tax.

"The new EU member countries have much lower taxes on cigarettes than we have in Germany and there is always the possibility to smoke smuggled cigarettes. These are, of course, much cheaper," said HWWI Director Michael Braeuninger.

The majority of illegal cigarettes come from Ukraine (3.2 billion) and Russia (2.4 billion), according to the market research organization Ipsos.

Regional differences

The study showed large variations by region of the average proportion of untaxed cigarettes smoked. In some western parts of Germany it was as low as 10 percen,t while in some eastern areas half of the cigarettes bought had no German duty paid on them. Most of those cigarettes originated in Poland.

The study was carried out on behalf of Germany's cigarette industry association, the DZV, which is calling for increased activity against smuggling and counterfeit products.

The change in smoking habits is estimated to have cost the cigarette industry about 1.2 billion euros in 2008.

Editor: Kyle James

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