Cash-strapped Romania and Bulgaria hoped that taxing cigarettes would be an easy and simple method of raising money but the increases only pushed smokers to a constantly growing black market.
Criminal gangs and poor Roma communities that are situated near the borders of such countries as Macedonia, Ukraine and Serbia, where the prices on cigarette products are lower, were smuggling cigarettes that has wiped out profits from higher excise taxes.
This year Bulgarian government increased taxes by nearly a half and also ordered to customs officials and police officers check all shops and markets. Tax revenues from cigarette sales have decreased by nearly a third in 2010, according to data provided by the customs officials.
Bulgaria and Romania are the two poorest countries in the European Union that try to recover from deep recessions and their governments have a strong incentive to let their populations keep smoking in the near future.
Bulgaria revoked the national ban on smoking in all bars and restaurants in June due to pressure from cigarette manufacturers, importers and distributors and also due to the need for tobacco sales as public revenue dropped.
Only Kyustendil, a town of 70,000, hold the ban from July 1and the resentment is evident, with club owners worried about making both ends meet and clients frustrated. Few people believe that this ban will survive the winter.
Excise taxes on tobacco products are an important source of revenue and accounted for 10% of all Bulgaria’s gains last year, $1.15-billion (U.S.).
Bulgaria is the most addicted to smoking along with Greece, with some 40% of the population smokers, according to a recent survey conducted by the Eurobarometer. About 22 million of neighbor Romanian population smoke.
“The abrupt excise increase revolted many consumers and raised the demand for cheap cigarettes. At present we see some brands that we have never seen before,” declared Ivan Bilarev, administrative manager of state-controlled Bulgartabak.
Cigarette prices in Bulgaria and Romania are well below than in many other European countries, about 2.00-2.50 euros per pack, but still rather expensive for consumers as they receive lower incomes.
That is why many smokers prefer cigarettes from black marker, as there a pack of cigarettes costs 1.00-1.75 euros.
Mr. Bilarev declared that smuggling has affected sales at Bulgartabak and according to some analysts a total smoking ban would lower the company’s price a pending privatization.
Overall losses from smuggling will probably overbalance tax profits as Bulgaria effort to fight the raising black market that has increased to over 30 % of all cigarette sales and could cost 500 million levs in lost profits this year.
Romania has the same problems as Bulgaria, after doubling cigarette prices in 2009 then increasing value added tax (VAT).
It was estimated that about a third of cigarettes in Romania are smuggled and it could cost the state over 1 billion euros.