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Explaining the expensive price of cigarettes

This article was added to our catalog on Friday 06 March, 2015.

Admittedly cigarettes are an expensive commodity and the price that smokers all over the world are called to pay when buying a pack of their favorite brand is definitely much higher than what the actual production costs for cigarettes could ever justify. Obviously, cigarette manufacturers should and do charge consumers in order to cover all their costs, involved in the production of the product, such as raw materials, wages and salaries, technical equipment, packaging etc.

However, they also have the additional hassle of having to compete in an industry where competition is fierce and the regulation by authorities is even fiercer, leaving manufacturers with little room to maneuver in order to implement their own pricing policies and reduce prices to attract more customers. In fact, the industry is governed by strict regulation not only in the production process of the cigarettes, but also with regards to their packaging and marketing. Cigarette manufacturers have several obligations to comply with and these are constantly being upgraded and changed thus leading to higher costs.

Let us take one quick to illustrate this: because there are many crooks around who produce and sell counterfeit, contraband cigarettes, the lawful cigarette manufacturers have taken measures to create anti-forgery packs for their products, at an increased cost. With the introduction of plain packaging for cigarettes by many governments around the world, tobacco manufacturers need to make additional expenses to comply with the new packaging rules and forgo the cost they incurred for the previous packaging, plus face the risk of their products being more easily forged by fraudsters.

However, the steep retail prices of cigarettes are of course not only down to what manufacturers charge for a pack, but primarily to the high taxes and duties which are imposed on cigarettes by authorities. If we think of the USA, a smoker may be called to pay a city tax, a state tax and a federal tax on a pack, thus rendering the final price ridiculously expensive! Governments, both at the local and national level tax cigarettes heavily because for them this is an easy and highly lucrative source of income at little or no political cost.

Cigarettes are taxed heavily and become so expensive to buy because they are a luxury and not a necessity. What is more, they are largely considered a bad habit that should be stopped, since they damage not only the health of the smokers but those around them as well and mean greater healthcare costs for authorities and the society in general. Thus, politicians and the public opinion favor high taxes and the associated high retail prices for cigarettes, because it has a three-fold aim as policy. It makes smokers liable to pay up for the increased healthcare costs their addiction results in, it “punishes” them in a way and gives them an incentive to quit and it works as a deterrent for others to take up the habit, especially those groups which are more likely to start smoking such as young people or those facing some kind of problem, for example they are unemployed and thus more vulnerable to be lured into addiction.

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