Costa Rica’s Cigarette-Tax Regime a Gift to Black Markets

From: PanAm Post/Opinion

Busybodies Fail to Improve Health, Do Make Smuggling More Profitable

David Rodríguez Suárez

Franklin Murillo, the manager of British American Tobacco in Costa Rica, told La Nación on March 31 that “In the face of higher taxes on a legal product … an illicit market will arise that does not compete under equal conditions and provides products at lower prices and lower quality.”

This is a phenomenon that merits our attention. Since the enactment of the Anti-Tobacco Law in Costa Rica on March 2012, we’ve been under the impression that cigarette use has gone down. However, in reality, we’ve seen a dramatic increase in illegal smuggling, and all because of a lack of understanding of how the market works.

In Costa Rica, it was thought that if taxes on cigarettes were increased, no one would buy them anymore because of higher prices. People failed to realize that doing this would only lead to tobacco users turning to the black market. Instead of taxing cigarettes at a lower rate, and therefore taxing a larger quantity of sales, the government failed to properly analyze the situation.

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