British American Tobacco (BAT) has been hit with a fine of £650,000 by HM Revenue & Customs for oversupplying cigarettes to Belgium, which has substantially lower tobacco taxes than Britain.
Apparently, that causes more low-cost cigarettes to be smuggled into the UK.
According to papers seen by the Wall Street Journal, it is the first time a big tobacco company has been fined for “oversupply of products to high-risk overseas markets”, high-risk markets being classified as those that sell cigarettes much cheaper than in the UK.
The penalty for such practises can be up to £5m. But BAT has rejected the charge of oversupplying Belgium and intends to challenge the fine in court. A pack of cigarettes in Britain will set you back £8.47, whereas in Belgium it costs £4.75, according to the Tobacco Manufacturers’ Association.
The Exchequer estimates one in 10 cigarettes sold in the UK is counterfeited, and the government loses as much as £2.5bn each year to the black market. Cigarettes and their producers are seen as an easy target for chancellors seeking to raise money. It has become par for the course in Britain to expect almost every budget to include a rise in tobacco duty.
However, the high price of cigarettes in Britain combined with strong demand has proved an enticing prospect for smugglers. Many cigarette manufacturers fear the scope for black market activity may increase further as a result of the EU tobacco products directive, which will be implemented into national law by mid-2016.
The measures ban flavoured cigarettes, such as menthols, as well as certain pack types like those which contain only 10 cigarettes. In total 45 per cent of the market is set to be impacted by the tobacco products directive.