Cigarette Smuggling
Is the illicit cigarette market really growing? The tobacco industry’s misleading math trick
http://tobaccocontrol.bmj.com/content/early/2015/05/22/tobaccocontrol-2015-052398.extract
The tobacco industry regularly uses the threat of increased illicit cigarette trade to dissuade governments from implementing prohealth policies. Illicit trade is the number one argument used by the tobacco lobby to oppose tobacco tax increases,1 and is also being used against implementation of other major tobacco control measures such as plain packaging, display bans and pack size restrictions.2
Studies funded and presented by cigarette manufacturers and their business associations are generally not peer-reviewed or replicable and therefore, do not meet standards of academic research.3 A growing body of evidence suggests that estimates of the illicit cigarette trade levels presented in the industry-commissioned reports are often inflated.4–10
Another tactic used by the tobacco industry to exaggerate the scope of the illicit cigarette trade problem is to use illicit cigarette market share rather than the absolute number
EU agreement with big tobacco hides smugglers behind smokescreens
http://nessachilders.ie/2015/05/19/eu-deals-with-big-tobacco-keep-hiding-smugglers-behind-smokescreens/
Nessa Childers, MEP for Dublin, criticised the European Commission’s ongoing negotiations to renew an agreement on smuggling with the tobacco industry.
A founding member of an MEP working group set up to fight the interference of the tobacco industry in public policy making, Ms. Childers fears that the renewal of the secretive agreement does not properly address illicit trade, depriving the public purse of compensation for tax losses.
The original agreement came about over a decade ago on foot of a settlement of a lawsuit launched by the Commission and a number of EU countries against tobacco giants Philip Morris International, R.J. Reynolds and Japan Tobacco International over a number of offences related to cigarette smuggling, which cost these companies billions of Euros.
Speaking from Strasbourg this week, where the Commission addressed the European Parliament on the matter, Ms. Childers said:
“The Commission is making a serious mistake by entertaining contacts with the tobacco industry to renew these agreements, which are due to lapse next year.
“The initial agreements were born from a settlement to a case where the Commission accused three tobacco manufacturing giants of no less than being part of a global scheme to smuggle cigarettes, launder the profits of narcotics, fix prices, bribe officials and conduct illegal trade with terrorist groups.
“Yet these companies have been put in charge of monitoring counterfeiting in tobacco smuggling seizures. They pay the authorities whenever these are found to be genuine so, unsurprisingly, they have found only 0.5% of seized shipments in 2012 to be genuine.
“This state of affairs is a mockery of enforcement and, to make matters worse, never has a sample been analysed by an independent laboratory, and we know very little of the specifics behind this scheme.
“The Commission has been officially asked by Parliament to conduct a proper assessment of this scheme back in 2012 and this should have happened by now.
“So, not only has the fox been put in charge of the henhouse, but we also have no know idea about what is going on inside, and meanwhile we are mulling over extending its safekeeping role.
“What is more outrageous, is that while these talks are going on, these very same big tobacco companies are challenging the Tobacco Products Directive in the European Court, including its requirement for an EU-wide supply chain track and tracing system.”
“We should be working on how to ratify and implement the WHO Protocol to Eliminate Illicit Trade in Tobacco Products, which the Commission rightly wants the Council to do, rather than waste time with this farce.”
Tobacco industry misrepresenting illegal market to stop excise increase, expert says
http://www.abc.net.au/news/2015-05-18/tobacco-companies-to-launch-cheap-cigarettes-battle-black-market/6477278
An expert in tobacco control says claims that action is needed to curb illegal tobacco use in New South Wales are incorrect.
British American Tobacco Australia (BATA) said it commissioned research which found 14.5 per cent of tobacco consumed in Australia is illegal.
BATA is considering introducing make-your-owns, at $9 for a pack of 25 cigarettes, to curb the trend.
But Dr Becky Freeman from the University of Sydney said government surveys showed illegal tobacco use fell between 2007 and 2013, and has accused the tobacco industry of distorting figures.
“It’s clear that the use of illicit tobacco has actually decreased,” she said.
Dr Freeman said 3.6 per cent of smokers admitted to using illicit tobacco.
But British American Tobacco insists its figures are correct.
“Our particular figure, we stand by it,” British American Tobacco Australia’s Scott McIntyre said.
“That’s backed up by us going out there and going to all different locations across the country with ex-detectives doing undercover purchases.”
Dr Freeman accused the tobacco industry of distorting illegal tobacco use to offset the impact of the rises in excise.
“The primary motivation to say that there has been an increase in illicit tobacco use is to prevent the Government from further increasing taxes and that hurts the tobacco industry,” she said.
“This is completely an industry beat up. I find that the notion that legal cigarettes have passed some sort of safety standards completely laughable.
Dr Becky Freeman
“The Government should continue on with its taxation policy of increasing the price.”
The tobacco industry has warned that proceeds from illegal tobacco and cigarettes were being funnelled to criminal gangs and that profits should be going to government.
“The excise system is just not having the desired effect,” Mr McIntyre said. “It’s shocking people into changing their behaviour and looking for cheaper alternatives.
“We’re not encouraging people to take up the habit. “We’re just saying if you’re already a smoker and you’re smoking an illegal product, we would rather them smoke ours and that way at least the consumer knows that they’re smoking a product that has been through the right laws and standards and the Government is getting their fair share in tax.”
Mr McIntyre said consumers also have greater assurances over what substances are used in legal tobacco products. But Dr Freeman said that simply was not true.
“I find that the notion that legal cigarettes have passed some sort of safety standards completely laughable,” Dr Freeman said.
“The cigarettes that are sold legally in shops, we actually have no idea what’s in them either.
“The tobacco industry isn’t required to declare what’s in them.”
Tobacco industry threatens to launch super-cheap ciggies as officials want more power to seize illicit tobacco
http://www.smh.com.au/nsw/tobacco-industry-threatens-to-launch-supercheap-ciggies-as-officials-want-more-power-to-seize-illicit-tobacco-20150517-ggzip5.html
The tobacco industry has threatened to launch super-cheap cigarettes costing just A$9 a pack in response to a growing black market in cheap, illegal tobacco, which health officials claim they are powerless to seize.
The NSW Cancer Council has slammed the move by the tobacco industry as a desperate attempt to attract new smokers. NSW Labor says the government must “get serious” about tackling smuggled tobacco, after a rise in illegal sales at retailers throughout Sydney.
NSW Health has told a review of tobacco laws that its inspectors have detected increased sales of illicit tobacco, which is packaged without health warnings and is sometimes blatantly labelled “illegal tobacco”.
Over the past two years, illegal sales were detected 28 times at retailers throughout Sydney, including at Haymarket, Glebe, Marrickville, Earlwood, Ashfield, Harris Park, Auburn, Wakeley, Strathfield, Punchbowl and Canterbury. Of those, 13 have not yet been successfully prosecuted.
Despite the emerging problem, the health department’s powers extend only to photographing and taking samples of illegal tobacco, and inspectors are unable to seize the products. It called for laws to be strengthened.
Contraband tobacco is typically sold cheaply, undercutting the price of legal products. It is usually imported from overseas and avoids quarantine, health checks, taxes and plain packaging warning people of the danger of smoking. It can also contain noxious chemicals and mould.
Health inspectors say retailers caught with illegal tobacco frequently claim it is not for sale, despite possessing large quantities beyond that which could reasonably be considered for personal use.
British American Tobacco Australia has suggested its own fix to the growing market for illegal “chop chop”, or unbranded loose tobacco, saying it will consider launching a cheap “make your own” cigarette brand to compete for market share.
It would involve selling “very cheap” loose tobacco, rolled by smokers at home using a high-tech cigarette-making machine. The company says the product could equate to $9 for 25 cigarettes. At present, the cheapest such pack is about $15.
Cancer Council NSW tobacco control manager Scott Walsberger said the plan was a “desperate attempt by the industry to recruit and retain smokers”. Data showed the use of illicit tobacco had declined in recent years, he said.
But NSW Labor’s health spokesman Walt Secord said international research showed illicit tobacco consumption is expected to surpass legal tobacco worldwide within five years. He offered bi-partisan support for “sensible and tough proposals” such as tougher laws and community education, adding “it is time the Baird government got serious about tackling the problem of dodgy smokes”.
Health Minister Jillian Skinner said the government was “committed to strengthening measures which will stop the sale of illegal tobacco”. She did not detail the timetable for reform.
A NSW Health spokeswoman said the department was seeking to have quantities of illegal tobacco deemed to be for retail sale and to extend the power of inspectors to seize the product.
Cigarette industry: ‘FBR should tie revenue projections to market share’
http://www.brecorder.com/taxation/181:pakistan/1186365:cigarette-industry-fbr-should-tie-revenue-projections-to-market-share/
A leading cigarette manufacturer Thursday conveyed to the Federal Board of Revenue (FBR) that revenue projections for documented industry for 2015-16 should be set taking into account expansion of market share, up to 24 percent of informal sector, which consist of counterfeit and non-duty paid cigarette from KP and Azad Kashmir.
Sources told Business Recorder here on Thursday that officials of a cigarette manufacturing unit met the tax authorities at the FBR House to discuss the revenue implications of the illicit and counterfeit cigarette. The projections of sales tax and Federal excise Duty (FED) revenue for 2015-16 should be set for the cigarette industry duly taking into account the facts and figures of counterfeit and non-duty paid cigarettes coming from KP and Azad Kashmir. They opined that loss of the company has increased in 2014-15 due to presence of counterfeit and non-duty paid cigarette of KP and Azad Kashmir.
Tax authorities were informed that 24 percent of the market share has been captured by the cigarette manufactures of KP and Azad Kashmir. Resultantly, the loss of the company is increasing day by day due to presence of such informal sector operating in KP and Azad Kashmir. They further informed the market share of the documented industry is shrinking, resulting in revenue loss from the said sector. Meanwhile, Minister (Trade), Washington D.C., Embassy of Pakistan, USA has informed the FBR that he recently held a meeting with the Vice President, Phillip Morris International, wherein, the organisation showed its interest in increasing their portfolio by investing a fresh $100 million in Pakistan, besides, looking to work with the Government of Pakistan in curbing illegal tobacco trade.
A report on illicit trade in tobacco products in Pakistan shared by Phillip Morris with the FBR revealed that two manufacturers contribute over 99 percent or Rs 85 billion ($850 million) of excise and sales taxes collected from this sector, based on the legal volume of 62.7 billion sticks. The tobacco industry is the largest contributor to Pakistan’s Excise tax base.
The magnitude of the illicit trade revealed that there are three sets of independent references available to measure the volume and incidence of illicit trade in Pakistan, namely Nielsen, Oxford economics and Euro-monitor. The ITIC & Oxford Economics (OE) Asia-14: Illicit Tobacco Indicator 2013 report – a pan-Asia study, indicates that nearly 1 out of every 4 cigarettes consumed in Pakistan is illicit. The volume of illicit cigarette consumed in Pakistan is the third largest in the region at around 19 billion cigarettes. This represents more than the total legal sales in Malaysia and Singapore combined. Furthermore, the loss to government revenue in fiscal year 2013/2014 is estimated at Rs 26.2 billion ($253 million), Phillip Morris said. Looking at trends, the Nielsen monthly retail trade audit shows a steady increase of illicit cigarettes sold in Pakistan over the past five years.
Finally, the recent passport report issued by Euromonitor estimates that the incidence of illicit cigarette consumption has regularly increased in the past five years to reach 31.1 percent of the total consumption, ie nearly 1 cigarette out of 3 cigarettes consumed:
Further, according to Euromonitor International, “The Pakistani government reportedly lost $275 million in fiscal year 2012-2013 in potential taxes as a result of illicit tobacco trade. The amount is 17 percent of the country’s current account deficit, which stood at $1.58 billion in the first six months of full year 2014″. The nature of the issue is that the consumption of illicit cigarettes is, in its vast majority, composed of domestic illicit cigarettes (under-declaration): These are cigarettes produced to be illegally sold and consumed in the domestic market. In Pakistan, the under-declaration of manufacturing volumes is carried out by small local manufacturers who, by doing so, evade the payment of the excise duty and the sales tax, thereby allowing them to price their cigarettes below the minimum legal price (Rs 42 per pack of 20 cigarettes), it said.
Non-Domestic Illicit cigarettes (counterfeit /contraband/smuggling): These illicit cigarettes are commonly illegally imported through the porous borders of Pakistan with Afghanistan. In Pakistan, the presence of counterfeit cigarettes is not deemed material, as opposed to contraband/smuggled cigarettes.
The various studies conducted by Nielsen, ITIC/Oxford Economics and Euro monitor indicate that locally manufactured cigarette evading taxes account for 80 to 85 percent of the total illicit consumption volume, or approximately 20 billion cigarettes in Pakistan. Aside from BAT’s and PMI’s local affiliates, there are more than 21 registered companies in Pakistan but the bulk of the domestic illicit volume comes from certain companies.
PMI said that the local manufacturers are mostly based in the Mardan area (Khyber Pakhtunkhawa province) some also have operations in the territory of Azad Jammu & Kashmir.
Based on the information available with Nielsen, Oxford Economics and Euro Monitor; the second component of the illicit cigarette consumption (smuggled cigarettes) accounts for approximately 15-20 percent of the total illicit volume of approximately 20 billion cigarettes in Pakistan. As indicated in the Retail Trade Audit and the Empty Pack Survey, the main Non-Domestic Illicit brand is a trademark. Based on Nielsen retail audit, Pine is 40 percent (759 million cigarettes) of the total smuggled component of illicit in Pakistan.
Reportedly, a common route to smuggle all sorts of illicit goods into Pakistan is via the port of Bander Abbas in Iran, followed by road transit towards Afghanistan from where a wide variety of illicit goods are then smuggled into Pakistan via the two main border-crossing points of Torkham and Chaman. A popular illicit brand appears to be smuggled via this route too. The illicit cigarettes are fairly ‘openly’ transported across the country, illustrating lack of enforcement and deterrence, Phillip Morris added.