Our Blog Posts

Mexico Reaps Revenue Gains from Tobacco Tax

Windfall disproves industry claims on lost revenues

Posted by: Editor | Nov 15, 2011

Mexico saw a surge in tobacco tax revenues from January through September 2011, according to the finance ministry — the result of a 2010 hike in tobacco taxes that industry opponents had claimed would increase smuggling and lose revenue.

Instead, Mexico's finance minister said the historic increase in cigarette taxes, which raised the tax per cigarette pack by seven pesos, boosted revenues by 9 percent after adjusting for inflation.

The new figures lay to rest the baseless tobacco industry claim that the tax hike would lead to smuggling and contraband cigarettes, and a corresponding drop in revenue. A British American Tobacco spokesperson, for example, had called the tax hike "the incentive for cigarette traffickers to return to Mexico," and predicted lost revenue.

The tobacco companies turn to these misleading arguments because they know that higher cigarette taxes are one of the most effective ways to reduce smoking, which is great for health but bad for the cigarette business. Worldwide evidence shows that every 10 percent increase in tobacco prices reduces tobacco consumption by 4 percent in high-income countries and by about 8 percent in low- and middle-income countries. A price increase of 10 percent would reduce the number of smokers by 42 million worldwide and save 10 million lives.

Mexico's results confirm that higher cigarette taxes are also a dependable source of revenue for government budgets.