Excessive taxes fuel cigarette smuggling and strengthen organized crime, experts warn

Santo Domingo.- Fiscal policies based on excessive taxes on products such as tobacco can generate effects contrary to those expected, including increased smuggling, the expansion of illicit trade, and the strengthening of criminal networks, according to experts and international organizations. An article recently published by Bloomberg points out that Australia, considered for years a world leader in the fight against smoking, is now facing a crisis stemming from its strict anti-tobacco policies, particularly due to the high tax burden applied to traditional cigarettes. These measures have caused cigarettes in that country to be among the most expensive in the world, which has encouraged the proliferation of the illegal market. According to the report titled Australia’s Anti-Smoking Efforts Undermined By Illicit Cigarettes, illegal tobacco has flooded the Australian market, offering cheaper alternatives to consumers. Experts cited by Bloomberg warn that illicit trade already accounts for more than half of tobacco sales in that country, also becoming a source of funding for gangs and criminal organizations. In that same vein, American economist Arthur Laffer argues that markets subjected to prohibitive measures and disproportionate tax burdens on products such as alcohol, tobacco, and nicotine tend to experience a drop in revenue and growth of the illegal market. Laffer explains this phenomenon through the Laffer Curve, an economic theory that posits that excessive taxes cause consumption to migrate towards illicit circuits.

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Cases like that of Mexico reinforce this warning. According to reports from the Associated Press (AP), the illegal trade of cigarettes in that country is controlled by at least seven drug cartels, especially after the tightening of regulations and prohibitions on nicotine products, which has strengthened the black market. Dominican Republic, a regional model In contrast, the Dominican Republic has been singled out as a success story in the fight against illicit trade. The country was included last year among the nations least vulnerable to smuggling, according to the most recent report by TRACIT (Transnational Alliance to Combat Illicit Trade). The report attributes this result to a state strategy based on balanced taxes, institutional strengthening, and coordinated actions against illegal trade, which has allowed a reduction in the penetration of contraband without sacrificing tax collection or encouraging parallel markets. Experts agree that international experience demonstrates the need to design balanced fiscal policies that protect public health without creating incentives for organized crime or eroding state revenues.