The U.S. Government Accountability Office (GAO) recently issued its March 2011 report entitled “Illicit Tobacco: Various Schemes Are Used to Evade Taxes and Fees.”  This report was issued as part of the recently enacted Family Smoking Prevention and Tobacco Control Act which directed the GAO to report on cross-border and illicit trade in tobacco products.  A copy of this new report may be found here http://www.gao.gov/new.items/d11313.pdf

According to the GAO report, the ATF has reported that as a direct result of the enactment of the PACT Act, the number of domestic Internet Web sites selling tobacco products has decreased from 200 to just 30 sites.

This study was undertaken as a result of the significant increase in federal and State tobacco excise taxes which the agency states have been raised “to discourage tobacco use and increase revenues.”  However, the agency goes on to note the correlating uptick in illicit trade in tobacco products.  The report states that such illegal activity “can undermine these policy objectives by avoiding excise taxes and increasing the availability of these products to consumers at lower cost.”

The GAO report examines the incentives that are important for understanding cross-border and illicit trade in tobacco products and the different schemes that are utilized to generate profits from such activities.