Dispatch: Increase Taxes, Lose Money

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Bulgaria and Romania, the two poorest nations in the European Union, tried to bolster revenue by increasing excise taxes on cigarettes — with Bulgaria even reversing a national ban on smoking in cafes and restaurants. But their cigarette tax revenue, which accounted for approximately 10 percent of Bulgaria’s revenue last year, has actually decreased by almost a third so far, since smuggling cheaper cigarettes from neighboring countries has created a growing black market.

“The steep excise hike shocked consumers and increased the demand for cheap cigarettes. We see brands we have never seen before,” Ivan Bilarev, managing director of state-controlled Bulgartabak tobacco company, tells Reuters.

Even though excise taxes may have the potential to increase government revenue, ACSH's Dr. Elizabeth Whelan wonders, “How could promoting smoking to increase cigarette sales and tax revenue compare to the increased cost of health care associated with adverse smoking health effects?“

ACSH's Dr. Gilbert Ross has a simple answer. “Health effects come 10-15 years down the road, but an excise tax is money on the table here and now, which is what the Bulgarian and Romanian governments are most concerned about. It is a bizarre inversion of government responsibilities — trying to balance budgets by encouraging a behavior known to promote premature illness and death.”