“One of Britain’s largest cigarette companies has labelled Ed Miliband’s plans for a new tax on tobacco as “unjust and just a bad idea”.”

 “Mr. Miliband said the tax would target tobacco firms which make “soaring profits on the back of ill health”

A value added tax is a form of indirect tax, and it is a tax on the sale price. Only the end consumers need to pay for the VAT. One of the purposes the government charge for the VAT is to generate more revenue, and the other is to stop people from smoking. “Labor said the proposed tax would raise £150 million a year for the NHS.” These revenue can be used for road construction, education, welfare and many other ways.

Taxes from cigarettes is a main financial inflow of many countries. If Ed Miliband plans to propose a tax on tobacco companies’ profits based on market share in the UK, it will raise revenues but the prices for cigarettes will also be higher.

Actually cigarettes get larger market shares and the profits have been increasing rapidly during these years. If the government increase taxes on cigarettes, it will drive a lot of consumers into the hands of criminals as many of them cannot afford the higher price cigarettes. People cannot give up smoking in a short time period, and it is difficult for smokers to do so.

As a result, consumers will buy cheaper cigarettes in black market which is an illegal action. More and more children can also buy cigarettes from black markets as sellers have no qualms about selling to children. When the government calculate GDP, black markets are excluded. Therefore, the stronger black markets are, the less precise the value of GDP.

Reference:

http://www.bbc.com/news/business-29335440