Background on the Conainta and its Relevance
The Consejo Nacional de la Industria Tabacalera (Conainta) is a prominent organization in Mexico, representing major tobacco companies such as Philip Morris México, British American Tobacco, and Japan Tobacco International. As the voice of the legal tobacco industry, Conainta plays a crucial role in shaping policies and regulations related to the sector.
The Proposed IEPS Increase and its Potential Impact
In response to a proposed increase in the Impuesto Especial sobre Producción y Servicios (IEPS) by over 30% on cigarettes, Conainta has raised concerns that this move could potentially double the illegal cigarette market in Mexico, pushing it to 50% of the total market.
Current State of the Illegal Cigarette Market
Currently, one out of every five cigarette packs sold in Mexico is illegal. This illicit market already causes annual losses to the government ranging from 13,000 to 15,000 million pesos, according to data from the Confederation of Industrial Chambers (Concamin).
Growth of the Illegal Cigarette Market
The illegal cigarette market in Mexico has grown by 240% between 2017 and 2023, increasing its share in national consumption from 8.5% to 20.4%, as per the study “El consumo de cigarros ilícitos en México” by the National Public Health Institute.
Consequences of the Proposed Increase
According to Conainta, if this proposal is approved, criminal organizations would become the primary sellers of cigarettes in Mexico. This situation would lead to more illegal brands on the market, increased risk of underage smoking, smuggling, and additional revenue for criminal groups. Small tobacco retailers would also face extortion, resulting in lower-than-expected tax revenue.
Illegal Cigarettes as a Source of Funding for Criminal Groups
Moreover, illegal cigarettes have become an increasingly lucrative source of funding for criminal groups, who use these funds to expand their operations and finance activities such as drug trafficking, human trafficking, and money laundering, according to the study ‘Cigarros Ilegales y Crimen Organizado’ by the Colegio de México.
Conainta’s Recommendations
In light of these concerns, Conainta has called for a balanced tax reform that combats the illicit trade of tobacco and promotes the adoption of less harmful nicotine products backed by scientific evidence.
Proposed IEPS Increase Details
On September 8, a proposal was presented to the Federal Congress aiming to improve tax revenue collection and allocate more resources towards healthcare spending for the benefit of the population.
- The proposal includes a more than 30% increase in the IEPS applied to cigarettes, which would result in a minimum 20-peso price hike per pack starting in 2026.
- The specific tax rate for cigarettes is planned to rise from 0.6445 pesos per cigarro enajenado or imported in 2025 to 1.1584 pesos per unit starting January 1, 2030.
- Additionally, the proposal introduces a special tax on nicotine products with a 200% rate.
Conainta’s Skepticism on Imposing Higher Taxes
Conainta questions the effectiveness of raising taxes on cigarettes, as they claim that such measures have proven ineffective in reducing the number of smokers or achieving projected revenue goals.
- In 2024, despite the increase in tobacco taxes, IEPS revenue from manufactured tobacco dropped 7%, falling from 50,400 million pesos in 2023 to 46,900 million pesos the previous year.
- Regarding a 200% tax on alternative products like nicotine bags, the industry argues that this measure would discourage the use of less harmful alternatives compared to cigarettes. Some international scientific studies suggest that these products do not produce combustion or release toxic chemicals found in secondhand smoke, resulting in up to 99% fewer harmful substances.
Success of Nicotine Alternatives in Smoke-Free Policies
Conainta cites Sweden as an example, where the widespread adoption of oral nicotine products has reduced smoking rates to 5%.
Key Questions and Answers
- What is the Conainta? The Consejo Nacional de la Industria Tabacalera (Conainta) is a Mexican organization representing major tobacco companies like Philip Morris México, British American Tobacco, and Japan Tobacco International.
- What concerns does Conainta have regarding the proposed IEPS increase? Conainta fears that a significant price hike on cigarettes could double the illegal market share, pushing it to 50% and empowering criminal organizations.
- What alternatives does Conainta propose? Conainta advocates for a balanced tax reform that combats illicit tobacco trade and promotes less harmful nicotine products backed by scientific evidence.
