How Greece could smoke, drink, and gamble its way out of trouble

▶ The country is a major hub for the global trade in illicit cigarettes ▶ “It creates a big public revenue hole that taxpayers have to fill”

On an ordinary morning on Stournari Street in downtown Athens, only a few blocks away from the epicenter of every riot the city has seen during the years of crisis, a man of Asian origin politely and openly offers cigarettes to passersby. The Chinese-made RGD smokes cost €1.50 ($1.70) a pack taxfree, less than half the taxed price of 20 Marlboros or Lucky Strikes at one of Greece’s street kiosks. More than 4 billion illegal, untaxed cigarettes are sold in Greece each year, according to Philip Morris International’s Greek affiliate, Papastratos Aves. The import duty alone on those 4 billion would bring €670 million in annual revenue.

Greeks could smoke, drink, and gamble their way out of their financial troubles, if only they paid the taxes on those habits. “Illicit cigarettes strip the Greek state of significant revenue that could be used for paying pensions, salaries, and social benefits,” says Iakovos Kargarotos, vice president of Papastratos. “It creates a big public revenue hole that taxpayers have to fill.”

The government of Prime Minister Alexis Tsipras promised to eradicate pockets of corruption and improve tax collection as a condition of Greece’s latest bailout by the euro area and the International Monetary Fund. His failure to clamp down on tax evasion—on cigarettes, alcohol, and smuggled fuel as well as income and capital gains—has forced the government to impose more belttightening. Tsipras’s latest proposals to raise mandatory pension contributions and increase taxes on farmers have sparked protests by farmers, whitecollar professionals, and workers, bringing the country to a standstill.

Doubts over Tsipras’s ability to push through budget cuts and tax hikes without losing his razor-thin majority have contributed to a selloff in government bonds and stocks, pushing prices to 25-year lows. Bank shares lost more than half their value this year through Feb. 8, as Tsipras struggled to satisfy creditor demands.

A thriving street market in contraband cigarettes, called “illicit whites,” is just a 15-minute stroll from parliament. They originate in places such as China, Egypt, and Pakistan, reaching Greece on smugglers’ “ghost ships” that pass on their cargo to smaller boats waiting offshore.

Greece has one of the highest rates of smoking in the world. More than 20 percent of cigarettes smoked are counterfeit, contraband, or untaxed, according to a Nielsen study cited by the local tobacco industry.

The best thing Greeks could do for the economy is quit. The cost of smoking, including hospital stays and lost working hours, is more than € 670 €3 billion a year, estimates Kostas Athanasakis, a researcher at the National School of Public Health. The Ministry of Finance didn’t respond to requests for comment. Tackling illegal trade in everyday products such as cigarettes should be simple compared

with white- collar tax fraud, but the politics is more complicated, says Ilias Lekkos, chief economist at Piraeus Bank in Athens. “The fact that large segments of Greek society benefit from tax evasion makes a clampdown extremely difficult.”

The bottom line Despite pressure from its creditors, Greece’s government has done little to tax billions of illicit cigarettes sold yearly.