Be Careful: Gov't Warned Tax On Alcohol And Tobacco Could Increase Smuggling

Last week the finance minister, Audley Shaw, announced an increase in the special consumption tax on pure alcohol from $1,120 per litre to $1,230 per litre.

He also said the tax on tobacco products was being increased from $14 per stick to $17 per stick.

In a newsletter reviewing the latest tax measures, Denning said the Government should exercise caution to ensure the tax revenue expected from the measures does not suffer from the law of diminishing returns.

He noted that raising these taxes increases the incentive to evade them and products such as alcohol and tobacco are particularly susceptible to smuggling.

Denning continued that greater smuggling places more competitive pressure on legitimate, law-abiding operators and this can in turn trigger unintended consequences.