A University of the Andes study reveals that raising the cigarette tax to $11,200 per pack would cut fiscal revenue by 75% and boost smuggling revenues to over $900 billion annually. The authors note that legal sales would plummet while the illegal market expands. The government aims to collect $2.5 trillion from tobacco and liquor taxes.
The University of the Andes released the study 'Taxes on Cigarettes, Smuggling, Fiscal Revenue and Organized Crime Income,' authored by Daniel Mejía and Juan Manuel Lozano. It assesses tobacco tax policy from three perspectives: tobacco consumption reduction, territorial financial sustainability and criminal revenues from smuggling.
At the current $4,068 per pack tax, annual consumption stands at about 368 million packs. Eliminating the tax would raise it to 470 million, a 28% increase. Yet, at the government's proposed $11,200 per pack under an economic emergency decree, total consumption would drop just 9.5% to 333 million, with legal sales crashing 80-90%.
This would slash tax revenue by 75%, from $970 billion to $240 billion, impacting departmental funding for health and sports. Smuggling revenues, tied to criminal groups, would rise from $395 billion to over $900 billion. "Beyond a certain tax threshold, revenue enters the declining part of a Laffer curve," the document states.
The illegal market already exceeds 35% of the national total in areas like the Atlantic Coast, Norte de Santander, Antioquia, Chocó and Tolima, causing over $1 trillion in fiscal losses. Meanwhile, the Health Ministry argues the tax safeguards public health.
