Excise duty and the illicit cigarette market in Brazil

The report, commissioned by British American Tobacco examines the relationship between cigarette excise duty, prices and the illicit cigarette market in Brazil. It compares three periods of policy: substantial increases in excise duty between 2010 and 2017, broadly stable excise rates between 2017 and 2023, and renewed increases from 2024 onwards. The analysis focuses on changes in duty-paid and illicit cigarette consumption, price differentials and tax revenues, and considers the role of illicit supply, particularly from Paraguay.

The historical analysis finds that the increase in excise duty between 2010 and 2017 was accompanied by a 32% increase in the real price of duty paid cigarettes. Over the same period, duty paid consumption fell from 85 billion to 53 billion cigarettes, while illicit consumption increased from 31 billion to 49 billion sticks, subsequently reaching 63 billion in 2019. The estimated illicit market share therefore rose from 26% in 2010 to 57% in 2019. By contrast, during the period of broadly stable excise rates from 2017 to 2023, the price gap between legal and illicit cigarettes narrowed, illicit market share fell from around 48% to 37%, and tax revenues from duty-paid cigarettes recovered.

The report also considers the implications of the recent increases in excise duty. Duty paid cigarette prices rose substantially following the 2024 excise increase, widening the price differential with illicit products. Although the data released so far finds no measurable increase in illicit consumption in 2025, the report notes that consumer and illicit-supply responses have historically occurred with a lag, meaning the full effects of recent tax changes may take one to three years to emerge. The report therefore concludes that future excise policy needs to take account of the existing illicit market, price differentials and the capacity of enforcement measures to address illicit supply, particularly where higher taxes increase the economic incentives for illicit trade.