Illicit trade and real prices of cigarettes in Chile.

Abstract

The tobacco industry claims that tobacco taxes are responsible for increased illicit trade in Chile, which they estimated at 37% in 2022. However, the evolution of cigarette consumption, estimated from population surveys, and of tax-paying cigarettes shows a decreasing penetration of illicit trade since 2018. A gap analysis was used to estimate the evolution of illicit trade based on an arithmetic identity stating that total national cigarette consumption over a given period is equal to the registered consumption as paying taxes plus the cigarettes that are consumed nationally without paying taxes. Illicit trade penetration in Chile was around 10% in 2020, less than half of what the tobacco industry claimed. In addition, the evolution of real prices of cigarettes, calculated using tax collection data, indicates that real prices net of tobacco taxes increased significantly during 2015-2021, a period with no changes in tobacco taxation. The cheapest cigarettes, presumably competing with illicit cigarettes, registered the most significant price increase. Claims of increasing illicit trade penetration in Chile are unfounded and are not supported by data on consumption and tax-paying cigarettes.