Digital Labels on Cigarette Packets Will Fight Tax Evasion

UAE Leading a Crackdown on Smuggling

The cigarette black market is an underground industry that costs the taxpayer millions. Hi tech labels are being introduced to help governments fight back.

Smoking is an expensive habit these days. The average pack of 20 is now around the £10 mark, and there have been suggestions that this price could double by 2020. It is no secret that the actual cost of manufacturing, packing and distributing a pack of cigarettes is mere coins, and that the majority of that £10 note is paying the associated taxes.

This means that cigarettes are unique in their price disparity from one country to another. Travel to parts of Asia or the former Soviet Union, and a pack of cigarettes will still be less than a pound. Keeping this in mind, the drivers for an underground market become clear, and it is estimated that around 25 percent of the cigarettes smoked in the UK have not had taxes paid on them. However, innovative custom product labels could hold the key to fighting back against the tax dodgers.

The same story the world over

The UAE is famous for its tax-free shopping, so it might seem ironic that the fightback against tax evasion is being launched in Dubai. However, while the price of cigarettes in the Emirates might seem low by UK standards at approximately 25 AED (£5.00) per pack, they were half that just a year ago, before the government implemented a 100 percent price hike.

As a result, the UAE has seen an explosion in what it calls “illicit whites” – these are cigarettes that are smuggled into the country from countries like Syria and Iran, and then sold in retail outlets. The government estimates that these account for some 30 percent of cigarettes in the market.

Nowhere to hide

The new labels will incorporate digital stamps that will confirm to customs and excise inspectors that the appropriate taxes have been paid. The Federal Tax Authority said in a statement that inspectors will be issued with special scanners, and will be sent out to perform spot checks. They said the initiative will help officials to “efficiently collect taxes, ensure transparency and combat tax evasion.”

In its initial stages, the scheme will only be applied to cigarette packaging, but ultimately, it will be rolled out across all tobacco products. Those selling, or even in possession of, cigarettes that do not bear the digital stamp will be subject to fines, and retailers will face having their operations suspended until they achieve compliance.

Further roll out?

The new stamps will be introduced at the beginning of next year, and the rest of the world will be watching closely. As taxes on tobacco products continue to escalate, the likelihood of smuggling will only increase, as will the impact on tax revenue. If the new labels are shown to have a major impact on tax evasion in the UAE, it will surely be only a matter of time before they are introduced in the UK and across the western world.