THE PUBLIC POLICY OF EXTRA-FISCALITY AS A (DIN)INCENTIVE FOR SMUGGLING

AN ECONOMIC ANALYSIS OF IPI RATES ON THE ILLICIT CIGARETTE MARKET

Abstract

A strategy adopted in Brazil to reduce cigarette consumption and defray the losses caused to the health system is to increase the Tax on Industrialized Products (IPI) rate applied to the tobacco industry. This tax policy becomes possible as a result of the extra-fiscal characteristic of the IPI, which, in addition to the collection function, aims primarily at the public interest, inducing or discouraging behavior. The present study aims to verify whether the IPI-Cigarette is effectively fulfilling its purpose, since the increase in the price of legal cigarettes may encourage the smuggling of cigarettes into the country. The methodology used assumes an explanatory nature, with a deductive method and is based on bibliographical research on the Economic Theory of Crime and the Expansion of Criminal Law. It was found that, by raising the price of legal cigarettes, consumers can look for cheaper alternatives, such as smuggled cigarettes, which offer greater convenience and profit prospects to smugglers. Therefore, based on the rational analysis of the cost-benefit provided, increasing the IPI-Cigarette to, a priori, reduce the prevalence of cigarettes and provide revenue to finance the costs associated with smoking encourages, on the other hand, smuggling, as the value of the cigarette sold illicitly will always be lower compared to the price of that sold on the legal market.