Tax expenditures are the losses in revenue from exempting parts of the tax base from taxation. The conventional method for computing tax expenditures disregards behavioural effects. Using an empirically based demand model, we simulate two reform scenarios that repeal current tax expenditures related to on-arrival duty-free sales of alcohol and tobacco in Norway. The model includes both recorded and unrecorded consumption, tracking all demand responses and their impacts on the tax base. Our results suggest that incorporating these behavioural effects reduces tax expenditures calculated by the conventional approach by more than one third.