Source: Folha de S. Paulo - 28/06/2010

According to manufacturers, consumers migrate to counterfeit, smuggled or lower tax products

DENISE MENCHEN
FROM RIO

In effect since May 2009, the increase in the tax burden on cigarettes has caused production to fall 9,7% in the country.
The estimate is by economist Roberto Iglesias, from ACT (Tobacco Control Alliance), who has already conducted studies on the sector for the World Bank.
Iglesias compared the collection of IPI accumulated between July 2009 and March 2010 with that of July 2008 to March 2009. While the increase in IPI rates was 23,5%, that of revenue was 11,53%.
The period from April to June was disregarded because it is a transition phase, in which production fluctuations were atypical.

EFFECTIVE MEASURES
The coordinator of Surveillance of Diseases and Noncommunicable Diseases of the Ministry of Health, Deborah Malta, says that the data corroborate studies that indicate that the increase in taxes is one of the most effective measures to discourage smoking.
The measure is indicated by the Framework Convention for Tobacco Control, an international agreement to which Brazil is a signatory.
Malta points out that different surveys point to a drop in the prevalence of smoking in the country: from 35% of the adult population in 1989, it went to 21% in 2003 and to 17,2% in 2008.
Telephone poll conducted by the ministry also shows a reduction in the percentage of those who smoke more than 20 cigarettes a day.
“Although the methodology is different, there is no doubt that the movement is falling,” says Malta.
She attributes the result to the restriction on advertising, the printing of warning photos on packaging and the approval of state laws that prohibit smoking in closed places, in addition to raising taxes.

CONSUMPTION MIGRATION
The cigarette industry, however, questions the association between falling production and falling consumption.
"The biggest impact of the increase in taxation is in changing consumer supply channels: by increasing the price of legal cigarettes, consumers migrate to the" cheapest ", which is the result of smuggling, counterfeiting or tax evasion," said Souza Cross by email.
According to the company, there are now more than 360 illegal brands in Brazil, which account for about 27% of the market.
Philip Morris, on the other hand, stated that the effectiveness of the tax increase also comes up against the current tax regime, which assigns different rates according to characteristics such as the type and size of packaging.
“The current tax regime encourages migration to packaging and brands that pay less tax. The migration of demand (…) limits the effects of the tax increase on consumption and reduces government revenue, ”said the company.
According to the IRS, illegal cigarettes worth R $ 2010 million were destroyed in 34,4. In 2009, the total was R $ 68 million.