The Party for the Democratic Republic of the Congo has asked, ‘What are the implications for the protocol of the current financial crisis?’
A good question.
From an
economist’s point of view there are
two main aspects to consider: a
likely fall in demand if there is a
recession, and a change in both
government and popular attitudes to
regulation.
This crisis has led to renewed acceptance of the need for greater regulation.
“The world will need to construct a new
global economic order for the 21st
century, and that will include a new
global regulating agency. Unilateralism
can’t work in a world of economic
interdependence.”
Joseph Stiglitz, Nobel Laureate and
ex-chief economist of the World Bank
GAINS IN GOVERNMENT TAX REVENUE
Demand for tobacco will fall - people will smoke less - when the tax has to be paid on the 600 billion cigarettes currently sold illicitly each year, but governments will gain revenue of some extra US$40 - 50 billion annually worldwide.
Many of our governments will receive millions of dollars in extra revenue each year.
In Africa, governments are often highly dependent on customs duties and could receive considerable additions to their budgets if the new system works effectively.
Finances will be tight in most countries for some time to come, following the massive loans and investments they have made to recapitalise banks to keep them viable.
Governments will want to raise tax levels as little as possible and so will prize the extra revenue accruing from the increase in legitimate tobacco sales.
This revenue is likely to considerably exceed the costs of implementation of the protocol, although costs and benefits will not be equally spread across countries.
Those with high consumption of smuggled or counterfeit tobacco and relatively high tobacco taxes will stand to gain the most.
Those with low illicit trade and low tax rates will obviously have less to gain. Most costs of regulation should fall to the tobacco companies.
However, low income countries, facing problems with shortage of financial and technical capacity, may well need initial support. The substantial global benefits should be able to sustain and justify such support.
REDUCTION IN SMOKING AND DEATHS FROM SMOKING
Despite the increase in tobacco revenues, the overall demand will fall as cheap illicit tobacco products are no longer available and only fully- taxed products are in the market.
This fall will impact particularly on younger and poorer smokers, reducing smoking, deaths and health inequalities.
It is estimated that for the UK alone some 4,000 to 6,500 deaths would be avoided each year.
...AND OTHER BENEFITS
A successful global protocol against smuggling could have extraordinary side effects. It could reduce global criminality, improve law and order and reduce funds for terrorism. It could also lead the way to solving other perennial problems including arms smuggling.
Let it be!
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