The article "Illicit Smokes up 25% since tax rise" by Eli Greenblat talks about the effects of increase taxes on the illegal trade and smuggling of cigarettes in Australia. It was published on March 1, 2011; exactly a year after the Australian government increased the taxation on cigarettes and vowed to legislate for the plain packaging of cigarettes in order to deter its use. (Greenblat 2011)
Introduction:
The Australian government was wary of high smoking rates among its citizens. It was concerned about the health issues that this can pose to the health of its population and the working class. In order to counter the problem, it was decided to increase the tax rate on cigarettes in order to make sure that less people smoke. The government was also aware of affinity that consumers have towards certain brands and some will never smoke if their brand is not available. In order to deter people it decided to legislate for the plain packaging of cigarettes. However, the rise in cigarette taxes did not reduce the consumption of cigarettes, but instead resulted in illicit trading of cigarettes and several black markets for trading of cigarettes popped up. (Hunt 2011)
[...] : References Bamford, Collin, and Susan Grant. OCR AS Economics Students Book. London: Heinemann, 2008. Chrystal, Alec, and Richard Lipsey. Economics. London: Oxford University Press, 2004. Daft, Richard L. Management. New York: The Dryden Publishing, 1994. Greenblat, Eli. "Illicit smokes up 25% since tax rise : tobacco boss." The Age, March 1, 2011. Hunt, Albert R. "Politics, Not Economics, Drives Anti-Tax Stand." Bloomberg , July 17, 2011. McConnell, Campbell, Stanley Brue, and Stanley Flynn. Economics. McGraw Hill, 2011. Tobacco in Australia. "Tobacco taxes in Australia." 2011. [...]
[...] This revenue would go to the health care centers. However as a result of this tax many illicit traders find that they can smuggle cigarettes and sell it a lesser price then the ongoing taxed price. They sell cigarettes at the price of Pbm and do their work without any documentation in isolation so that they do not have to pay any tax. This leads to a black-market situation where the profits are being made on the sale of cigarettes but no money is going to the government for its health care and other welfare projects. [...]
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