A BIG drop in tobacco revenue is partly due to smuggling, Customs believes. Income fell by £840,000 last year.

That is being blamed to a degree on increased smuggling in the wake of duty hikes, and an increase in the availability of duty-free.

It might also be partly due to a fall in tobacco consumption.

The island’s economic strategy supports an increase in excise and other indirect taxation.

Customs’ chief officer Rob Prow believes this will mean that the Treasury and the Customs and Excise, Immigration and Nationality Service, face new challenges.

‘The lessons learned in other jurisdictions show that once indirect taxation rates begin to rise, fraud and abuse also increases alarmingly,’ he said.

Customs’ annual report for 2005 highlights that this has been the case where excise rates have increased but the revenue has decreased.

Mindful of the financial pressures facing the island, the enforcement division is focusing increasingly on duty dodgers, particularly tobacco smugglers.

Customs and Excise duties totalled £15.5m. last year – a 1% fall on the 2004 total of £15.7m.

The decrease is due to the fall in tobacco duty.

Income from other excise commodities such as wine, spirits, beer and cider rose in line with predictions following the 10% increase in those excise rates in November 2004.

Tobacco revenues fell from £7.2m. in 2004 to £6.4m. in 2005 – an 11% decline – despite the programmed annual increase in the rate of excise duty at Budget time.

‘This drop in income may be due in part to a drop in consumption, however the increased availability and use of duty-free tobacco products by travellers is seen as a key factor,’ said Mr Prow in the report.

‘Additionally, as the rates of excise duty on tobacco have been increased significantly over the past few years, the incidence of tobacco smuggling has been seen to rise accordingly.’

Sales of duty-free goods, particularly tobacco products available to travellers, have been steadily increasing and efforts are being made to ensure compliance with statutory allowances.