Cigarette tax hike backfires in Balkans

Fri Aug 27, 2010 8:15am EDT
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By Tsvetelia Tsolova

KYUSTENDIL, Bulgaria (Reuters) - Cash-strapped Bulgaria and Romania hoped taxing cigarettes would be an easy way to raise money but the hikes are driving smokers to a growing black market instead.

Criminal gangs and impoverished Roma communities near borders with countries where prices are lower -- Serbia, Macedonia, Moldova and Ukraine -- have taken to smuggling which has wiped out gains from higher excise duties.

Bulgaria increased taxes by nearly half this year and stepped up customs controls and police checks at shops and markets. Customs office data, however, shows tax revenues from cigarette sales so far in 2010 have fallen by nearly a third.

"The government created something unique. We actually now have a whole industry that provides for a big group of people," said Tihomir Bezlov of anti-corruption think-tank Center for the Study of Democracy.

Bulgaria and Romania, the two poorest countries in the European Union, are struggling to recover from deep recessions and their deficit-stricken governments have a powerful incentive to let their populations keep puffing for the immediate future.

Bulgaria reversed a national ban on smoking in all cafes and restaurants in June, which analysts said was due to pressure from cigarette producers, importers and distributors and the need for tobacco sales as public revenue falls.

Only Kyustendil, a town of 70,000, retained the ban from July 1 and the discontent is palpable, with bartenders and club owners concerned about making ends meet and partygoers frustrated. Few believe the ban will survive the winter.

"This is a complete nonsense, given that 90 percent of the people smoke," said Kyril Mirchev, 22, grumpy because he cannot smoke while playing billiards. Dancing too just isn't the same without a cigarette, so discos are deserted.   Continued...