Fake cigarettes cost Treasury £2.9bn a year
The black market trade in cigarettes and rolling tobacco is costing the Treasury £2.9 billion despite a major drive to combat the problem, a committee of MPs has warned.
HM Revenue and Customs (HMRC) launched a £209 million initiative in 2000 to target resources at the number of fake cigarettes coming into the UK, with the aim of cutting the proportion of fakes to 13 per cent of the overall tobacco market.
In a new report, the public accounts committee says this action has brought results, cutting the market share of illicit cigarettes from 21 per cent to 16 per cent in its first three years – the equivalent of £2.1 billion in extra revenues.
However, the MPs warn the amount of money being lost in VAT and tax revenues, which included £2.2 billion in cigarettes and £0.7 billion in rolling tobacco in 2003-04 alone, is still too much.
The MPs have called on customs to look at how their resources could be better focused, in particular on rolling tobacco, which was not included in their anti-fraud drive.
They say HMRC must also work with the Department of Health to make the public aware of the health risks posed by fake cigarettes, most of which come from the far east and eastern Europe.
“An enormous sum of revenue is still being lost. £2.9 billion was defrauded in 2003-04 and the department believes that 2004-05 will probably see an increase,” said committee chairman Edward Leigh.
He added: “Tobacco smugglers cheat the taxpayer. Where they deal in counterfeit cigarettes, manufactured in the Far East and Eastern Europe from inferior quality tobacco, they are also subjecting the health of smokers to even more risk.
“The department must further develop its strategies for combating the smuggling and sale of these counterfeit cigarettes and also, another significant illicit trade, that of hand rolling tobacco.”
Responding, an HMRC spokesman insisted the department had had “significant success” in targeting cigarette smugglers in the past few years.
“We have seized 11 billion cigarettes, broken up over 300 criminal networks and prosecuted more than 2,500 individuals through the courts, seizing millions of pounds of their assets,” he added.
