The More Greece Raises Cigarette Taxes, The More Money it Loses

ATHENS – Repeated hikes in Greece’s cigarette tax – now 90 percent of the cost of a pack – has driven down tobacco tax revenues and driven people to an underground market.

One of the easy so-called “sin taxes,” cigarettes and tobacco represent easy targets for governments needing revenue except that the hikes are having the opposite effect, the newspaper Kathimerini said.

The taxes are costing the government about 800 million euros ($851.12 million) annually in potential revenues as people turn to smuggled cigarettes, which are even sold in the open on the streets.

The ruling Radical Left SYRIZA-led coalition, after promising to cut taxes, has added another 40-50 cents to a pack of cigarettes for 2017, with estimates it will drive down expected revenues even further.

From budget revenues of 3.9 billion euros ($4.15 billion) in 2011 (3 billion euros or $3.19 billion from the special consumption tax and 900 million euros, or $957.51 million from the Value-Added Tax), state coffers cashed in on just 3.1 billion euros ($3.3 billion) last year (2.4 billion euros or $2.55 billion from the special tax and 700 million euros or $744.73 million from VAT), with projections for this year pointing to an even bigger contraction, the newspaper said.

The drop is not due to people giving up smoking, however, as the market share of illegal tobacco products has doubled from 10.1 percent in 2011 to 20 percent this year, and is expected to grow to 25 percent in 2017 after the upcoming rise in tobacco tax.

Greece, which has one of the world’s highest smoking rates, also has the highest tax level in the European Union but it doesn’t deter many people from continuing to smoke at almost any cost, even to their health.