Sales of tobacco products in Spanish tobacconists and bars have dropped dramatically in the last five years, according to the Finance Ministry and the cigarette industry.
While over 90 billion cigarettes were legally sold in Spain half a decade ago, last year sales were down to 47.5 billion – a 47-percent drop.
The trend can be attributed to tougher anti-smoking legislation, tax hikes and a loss of consumer purchasing power as a result of the economic crisis. This in turn has led to a spike in tobacco smuggling and a search for cheaper alternatives, such as roll-your-own cigarettes and pipe tobacco.
Consumers are also turning to low-cost cigarettes, whose makers have been thriving and already control a share of over 11 percent of the market. Brands such as Elixyr, Golden America and Winfield cost no more than €4.10 a pack – compared with €4.80 for regular brands – and have been enjoying a sharp rise in sales despite the small price difference and low profit margin for manufacturers.
The proportion of tax-free cigarettes smoked in Spain is now over 11.3% – which represents €718m in lost taxes
Smuggled cigarettes pose another challenge for the industry. The tobacco lobby has been fighting back with a campaign to raise awareness about the way smuggled products hurt the Spanish economy by depriving the state of taxes.
These claims have been backed in recent weeks after the European Union said it detected signs of tobacco smuggling and money laundering in Gibraltar, and asked Spanish and British authorities to investigate.
According to a KPMG study commissioned by the four largest cigarette manufacturers (British American Tobacco, Imperial Tobacco, Japan Tobacco International and Philip Morris), 8.8 percent of all tobacco consumed in Spain is smuggled in. If you also take into account the 15 packs that a person can legally bring in from the tax-free principality of Andorra, just north of Catalonia, on each visit, the proportion of tax-free cigarettes smoked in Spain is now over 11.3 percent, compared with 2.5 percent in 2009. This represents €718 million in lost taxes, according to the study.