Tobacco Tax Evasion in Southeastern Europe: Tax Evasion Prevalence and Evasion Determinants (Policy Brief)

This Policy Brief was written by the Institute of Economic Sciences and presents research from Southeastern Europe. The policy brief analyzes tax evasion and avoidance in six countries in the region. The findings show that 20.4% of all smokers evade taxes, with especially high rates of tax evasion among users of hand-rolled tobacco (86.7% compared to 8.6% of manufactured cigarette smokers). In fact, hand-rolled tobacco is predominantly illicit in all six countries, while manufactured cigarettes are largely licit in four countries. Tax evasion levels in Bosnia and Herzegovina and Montenegro are higher (18.6% and 61.2% of smokers, respectively). The researchers find that nations that are more successful at preventing the sale of illicit hand-rolled cigarettes at legal points of sale, have lower levels of tax evasion. Further, researchers find evidence of a spillover effect, as municipalities closer to countries with high levels of illicit trade have a higher likelihood of tax evasion. Individuals in low-income households, women, and the elderly are more likely to evade taxes than the rest of the population. The policy brief further makes policy recommendations to address tax evasion in the region.

A corresponding Report can be found here.