Smuggled tobacco to cost pounds 2bn in lost tax

THE GOVERNMENT could face a pounds 2bn shortfall in tax revenue this year as a result of a dramatic increase in the number of smuggled cigarettes, according to leading tobacco manufacturers.

A sharp rise in illegal imports of cigarettes and hand-rolled tobacco could lead to a near three-fold increase in the loss of tobacco duty, the Tobacco Manufacturers' Association (TMA) says.

In a study to be published shortly, the TMA, made up of the UK's market leaders, Gallagher, Imperial Tobacco and Rothmans, is expected to warn that recent government figures vastly under-estimate the amount of tax revenue lost to cross-Channel boot-legging.

In July, Geoffrey Robinson, the Paymaster General, told Parliament that the government lost pounds 690m worth of tax due to smuggling in 1997.

The bulk of the loss - around pounds 540m - came from illegal hand-rolled tobacco, with only pounds 145m due to smuggled cigarettes.

But the TMA study is set to show that the real loss to the Exchequer could be close to pounds 2bn, due to a sharp rise in the number of cigarettes bought on the Continent - where taxes and duties are lower - and sold in Britain for a profit.

The TMA will use the survey's findings to lobby the government to freeze tobacco duty in this year's Budget and eventually bring it down to European levels.

"The government figure is way out of line and it severely underestimates the size of this problem. We believe this could lead to a substantial loss of revenue," John Carlisle of the TMA said yesterday.

A Customs and Excise spokesman defended the agency's estimates. "While we accept that we lose a reasonable amount of tax to smuggling, we would dispute [the TMA's] figure," he said.