Cigarette Smuggling

KPMG Report – Illicit tobacco in Australia

Oct 13th, 2014

CTA says: Gee, read the KPMG disclaimer!

“This report on illicit tobacco consumption in Australia (“Report”) has been prepared by KPMG LLP in accordance with specific terms of reference (“terms of reference”) agreed between British American

Tobacco Australia Limited, Philip Morris Limited and Imperial Tobacco Australia Limited (together “the Addressees”), and KPMG LLP.

KPMG LLP has agreed that the Report may be disclosed to any party on the basis set out herein. KPMG LLP wishes all parties to be aware that KPMG LLP’s work for the Addressees was performed to meet

specific terms of reference agreed between the Addressees and KPMG LLP and that there were particular features determined for the purposes of the engagement.

The Report should not therefore be regarded as suitable to be used or relied on by any other person or for any other purpose. The Report is issued to other parties on the basis that it is for their information

only. Should any party choose to rely on the Report they do so at their own risk. KPMG LLP will accordingly accept no responsibility or liability in respect of the Report to any party other than the

Addressees.”

And the terms of reference were :

1.2 The purpose of this report

British American Tobacco Australia, Imperial Tobacco Australia Limited and Philip Morris Limited have commissioned KPMG LLP to conduct an independent report to estimate the size of the consumption of illicit

tobacco in Australia. The purpose of this report is: 1.To provide an overview of the nature and dynamics of the legal and illicit tobacco markets in Australia of the legal and illicit tobacco markets in Australia,

and2.To provide an independent estimate of the size of the illicit tobacco market in Australia. This report covers the twelve months (July 2013 to June 2014) up to the end of the first half of 2014 (H1 2014).

This H1 2014 report measuring the consumption of illicit tobacco in Australia is the first of two reports that will be tobacco in Australia is the first of two reports that will bepublished for 2014. KPMG has been appointed to produce

bi-annual reports on the illicit trade for the industry in Australia.

Meanwhile it seems KPMG swings with the wind, or rather finds results according to the client paymaster:

KPMG report funded by tobacco money spelling doom and gloom for the catering industry clinically decimated by University of HK report

http://www.legco.gov.hk/yr02-03/english/panels/hs/papers/hs1025cb2-1-2e.pdf

Whereas KPMG reports for the City of Ottawa show the complete opposite to what KPMG submitted with a different paymaster

www.ocat.org/economics/index.html

www.ocat.org/pdf/Final_KPMG_report_Nov_2002.pdf

and University of Bath TobaccoTactics says:

http://www.tobaccotactics.org/index.php/KPMG

http://www.tobaccotactics.org/index.php/Plain_Packaging:_Have_Illicit_Levels_Risen_in_Australia%3F

http://www.tobaccotactics.org/index.php/Countering_Industry_Arguments_Against_Plain_Packaging:_It_will_Lead_to_Increased_Smuggling

http://www.tobaccotactics.org/index.php/Scotland_Plain_Packaging:_Scaremongering_over_Illicit_Tobacco

http://www.tobaccotactics.org/index.php?title=Plain_Packaging:_Have_Illicit_Levels_Risen_in_Australia%3F&action=edit

http://www.cancervic.org.au/plainfacts/browse.asp?ContainerID=plainfacts-news

Download (PDF, 1.46MB)

All systems go for BIR’s stamp tax project

Sep 22nd, 2014

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MANILA, Philippines – Its all systems go for the Bureau of Internal Revenue’s stamp tax project following the approval by the Department of Finance of the proposed revenue regulation mandating the affixture of stamps on all imported and locally made cigarettes.

Under the Internal Revenue Stamp System (IRSIS), every packet of locally-manufactured cigarettes must bear a stamp tax by Oct. 1 to indicate that the required excise tax has been paid by the manufacturers.

Imported cigarettes, on the other hand, will have the new stamp tax starting Feb. 2015.

The IRSIS allows authorities to further secure the distribution system as well as aid in the investigation of illicit trade.

Under this system, it is possible to quickly distinguish genuine from counterfiet cigarettes and to verify the authenticity of the tax stamps applied on the packs by manufacturers.

BIR commissioner Kim Henares said the new regulation is key to the government’s anti-smuggling strategy as the stamps serve as effective tracking and audit tools to ensure that all due taxes are collected on cigarettes.

“This measure will strengthen our capacity to combat smuggling of tobacco products. We believe in implementing regulations with enough teeth to bite down on smugglers who are intent on depriving the nation of critical resources for greed and private gain,” Henares said.

To effectively monitor the movement of tobacco products, the BIR will order the installation of a close circuit television monitoring system on all production and withdrawal points in the premises of all cigarette firms.

Aside from curbing illicit cigarette sales, the trace and trace system is expected to help raise additional revenues for the government, said Finance Secretary Cesar Purisima.

“In 2013, revenues from the Sin Tax Law were 51 percent higher than projected. Simple governance measures like this enable the government to push harder in driving our revenue collection performance ever upwards. We are consistently looking at ways to enhance the government’s ability to raise revenues at a critical time requiring much investments to our infrastructure, services, and people,” Purisima said.

All importers and local cigarette manufacturers are required to enroll or register with the IRSIS prior before they purchase the stamps.

Illicit trade has become a concern for some major tobacco manufacturers and some organizations.

A study done by the UK-based think tank Oxford Economics, together with the International Tax and Investment Center, showed that the Philippines has become one of the biggest markets for illegal cigarette sales, accounting for 34.5 percent of all untaxed cigarettes consumed within ASEAN, the second highest after Vietnam which took up a 39-percent share.

ITIC president Daniel A. Witt said the Philippines now has the fastest growing black market as one out of five cigarettes sold in the country is illegal.

Illicit consumption across Asia was estimated to have increased by 20.1 percent to 79.9 billion cigarettes, mainly driven by the 198-percent surge in illegal cigarette sales in the Philippines.

On the other hand, Pakistan and Singapore saw significant declines in the share of illicit consumption.

According to the study, the Philippines also posted the biggest jump in tax loss from illicit consumption at 49 percent, representing 9.4 percent of the total $3.9-billion losses incurred by the ASEAN region. The largest tax losses were in Australia ($1.35 billion), Malaysia ($624 million) and Hong Kong ($395 million).

September 16, 2014

http://www.philstar.com/business/2014/09/16/1369422/all-systems-go-birs-stamp-tax-project

Customs detects case of suspected evasion of tobacco duty

Sep 10th, 2014

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Hong Kong (HKSAR) – Hong Kong Customs detected earlier this week a case involving suspected evasion of tobacco duty by a company holding an Import and Export Licence for Cigarettes. The company was suspected to have mixed duty-not-paid cigarettes with duty-paid ones for sale, intending to evade tobacco duty of about $4.1 million.

In the operation, Customs seized about 2.2 million sticks of suspected illicit cigarettes, with a market value of about $4.7 million and a duty potential of about $4.1 million, from a company in Mong Kok and a store in Kwai Chung. Five men and two women aged between 25 and 54, including a company director, three company staff, two drivers and a conveyor, were arrested.

Customs has been monitoring the cigarette sales in the market.

It was found recently that there were discrepancies in the company’s stocks of duty-paid cigarettes and its business records. After several months’ follow-up investigations, it was suspected that someone had mixed the smuggled duty-not-paid cigarettes with duty-paid ones for sale in an attempt to evade tobacco duty.

Customs took enforcement action on August 25 to search the company’s office in Mong Kok and seized 600 000 sticks of suspected illicit cigarettes from 60 carton boxes. Customs further seized 1.6 million sticks of suspected illicit cigarettes from 131 carton boxes in a store at an industrial building in Kwai Chung.

The licensee of the company and six other persons involved in the case were arrested.

A Customs spokesman said today (August 28) that Customs has put in place an effective system on the control of import and export of cigarettes and tobacco products. A person who imports and exports cigarettes must possess a valid Import and Export Licence. A company holding an Import and Export Licence must also obtain the relevant permits from Customs prior to removal of cigarettes.

A licensee must comply with the relevant licensing and permit conditions. Customs will continue to closely monitor the market situation and strengthen intelligence gathering. Target enforcement action will be taken against any suspected illicit cigarette activities.

Under the Import and Export Ordinance, smuggling is a serious offence.

The maximum penalty is a fine of $2 million and imprisonment for seven years.

Under the Dutiable Commodities Ordinance, anyone involved in buying, selling or dealing with illicit cigarettes commits an offence. The maximum penalty is a fine of $1 million and imprisonment for two years. For cases of intentional evasion of duty, a magistrate may additionally impose a fine not exceeding 10 times the amount of duty payable on the dutiable goods.

Under the Crimes Ordinance, a person convicted of the offence at common law of conspiracy to defraud shall be liable to imprisonment for 14 years.

http://www.customs.gov.hk/en/publication_press/press/index_id_1212.html

Illicit cigarette study is blowing smoke, says council on smoking and health

Sep 10th, 2014

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Wednesday, 10 September, 2014

Chris Lau

One out of three cigarettes smoked in Hong Kong last year was illicit, costing the government more than HK$3.2 billion in lost tax revenue, a study by two overseas think tanks says.

But the Hong Kong Council on Smoking and Health (COSH) says the results are “dubious”.

The Illicit Tobacco Indicator study – conducted by UK-based Oxford Economics and the International Tax and Investment Center (ITIC) in the US – suggests that the city’s illicit cigarette consumption rate stood as high as 33.6 per cent of 1.8 billion cigarettes smoked in 2013, causing a loss of HK$3.2 billion in taxes.

Of the 14 countries studied, Hong Kong had the third highest consumption rate, after Brunei and Malaysia, which ranked first and second, respectively.

The findings were contested by COSH. A study done by the council and the University of Hong Kong showed the consumption rate in 2012 was between 8.3 per cent and 14 per cent. The report by ITIC and Oxford Economics for the same year, however, suggested 35.9 per cent.

Yesterday, at the Canadian Chamber of Commerce, ITIC president Daniel Witt said the high rate was caused by substantial tax increases for cigarettes which force smokers to seek a cheaper alternative – illicit cigarettes. He cited a 50 per cent rise in cigarette tax between 2008 and 2009.

He shrugged off suggestions that the study could be biased as it was partly funded by Philip Morris International, an American tobacco company.

But COSH chairwoman Lisa Lau Man-man said: “The tobacco industry and its supporters always express strong opposition to tobacco tax increases under the pretext it will lead to a surge in cigarette smuggling.”

http://www.scmp.com/news/hong-kong/article/1588896/illicit-cigarette-study-blowing-smoke-says-council-smoking-and-health

The best way to combat illicit smoking, Lau said, was through education and law enforcement.

The Standard: SAR hotspot for smuggled cigs

Sep 10th, 2014

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Wednesday, September 10, 2014

Illicit cigarettes make up nearly 34 percent of consumption locally, placing Hong Kong third in the list of cigarette-smuggling places in Asia, according to a study.

The study “Asia-14: 2013 Illicit Tobacco Indicator” notes that nearly 16,600 cases of cigarette- smuggling were handled by the Customs and Excise Department last year, with illicit cigarettes seized worth HK$222 million, up 15.6 percent over 2012.

Illicit cigarettes make up 33.6 percent of the total purchased in the SAR, according to the study, placing Hong Kong behind only Malaysia and Brunei.

The study was conducted by UK-based Oxford Economics in partnership with the US-based International Tax and Investment Center and funded by Phillip Morris International.

ITIC president Daniel Witt said that excessive tax rises are the main cause of the increase.

Planned and gradual tax increases were preferable to radical tax shocks, he said, adding that criminal syndicates could make huge profits if there was a sudden large increase in the price of cigarettes. BRYAN WONG

The Asia-14 Illicit Tobacco Indicator 2013

Sep 1st, 2014

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Tobacco companies are the source of over 90% of smuggled tobacco in Ireland

Aug 21st, 2014

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http://www.cancer.ie/about-us/news/big-tobacco

Tobacco companies are the source of over 90% of smuggled tobacco in Ireland: Irish Cancer Society

The Irish Cancer Society has applauded the Revenue Commissioners for the drop in the rate of tobacco smuggling into Ireland but is expressing concern at the revealing statistics* that show that Big Tobacco is the source of 90 percent of cigarettes coming illegally into the country.

Contraband cigarettes, which are manufactured by big tobacco companies are being smuggled into Ireland, usually from countries where tobacco prices are lower, and sold on the black market here at a price much cheaper than legally-sold cigarettes.

“The level of contraband cigarettes coming into Ireland strongly suggests that Big Tobacco is deliberately flooding low tax economies with their own brands which then mysteriously find their way into economies such as the UK and Ireland where the price of cigarettes is kept much higher in order to discourage smoking, especially by children”, said Kathleen O’Meara, Head of Advocacy & Communications.

“However, and despite what Big Tobacco is constantly alleging, the amount of counterfeit tobacco, usually manufactured in China or the Middle East, coming into Ireland is negligible compared to contraband cigarettes”, she said.

“Ireland is not a haven for counterfeit tobacco but instead Big Tobacco allows its own brands to come into Ireland illegally, deliberately to recruit young smokers whom they need to replace quitters and those dying from smoking.”

In the UK, investigations by Her Majesty’s Revenue and Customs (HMRC) have led to a drop in the rate of smuggled contraband cigarettes from 31 per cent in 2003 to 6 per cent in 2010.

“Why then is the rate of contraband cigarettes in Ireland a staggering 91.7 per cent according to Revenue figures?

“We are asking for an investigation into why the level of contraband is so high in Ireland and specifically we want the supply chains of these contraband cigarettes investigated. This has happened in the UK where it has been proven that tobacco companies themselves are complicit in allowing their own brands into illegal supply chains”, said Ms O’Meara.

An investigation into the tobacco industry showed that in Ukraine in 2008, the four biggest manufacturers produced and imported 30 billion more cigarettes than what the local market can consume. This 30 billion then disappeared bound for the black market in Western Europe.

“It’s time for the government to wake up to the double talk of the tobacco industry which on the one hand lobbies hard against price increases, claiming that it encourages smuggling, while at the same time allowing its own product into the illegal markets”, she said.

*Revenue Commissioners, “Cigarette Consumption Survey 2013”, concludes “of the 12% of packs classified as illegal, 11% were classified as contraband and 1% as “illicit whites”. No counterfeit packs were recorded in the survey.”

ITIC-OE study on PH illicit cigarette trade, unreliable – AER

Jul 30th, 2014

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http://aer.ph/itic-oe-study-on-ph-illicit-cigarette-trade-unreliable-aer/

Action for Economic Reforms (AER) refutes the claim of the International Tax and Investment Center (ITIC) and Oxford Economics (OE) that nearly P16 billion was lost in illicit cigarette trade in the Philippines, mainly causing the drop in legal domestic sales of cigarettes in 2013.

The said ITIC-OE study entitled “Asia-11 Illicit Tobacco Indicator 2013 Update for the Philippines” estimated that illicit consumption of cigarettes in the country increased from 5.9% of total consumption in 2012 to 18.1% in 2013. Moreover, it claims that the total consumption of smokers was only down by 3% after a year of implementing the Sin Tax Reform Act of 2012.

Yet AER argues that the study is a case of conflict of interest. ITIC is a research firm that claims to be independent even while Philip Morris International’s Vice President for Fiscal Affairs and International Trade (Mr. Huub Savelkouls) actually sits in the Board of Directors, along with other global tobacco industry representatives.

AER recalls that at the height of the sin tax debate in Congress in October 2012, ITIC organized the Ninth Asia-Pacific Tax Forum in Manila and used the occasion to criticize the government’s proposed reforms, including the cigarette tax increase. In the experiences of other countries such as Australia and the UK, using alleged threat of smuggling has been among the strategies of tobacco companies to oppose tobacco tax reforms.

Significantly, said AER Coordinator Filomeno Sta. Ana, the ITIC-OE study suffers from serious methodological problems starting from its data gathering process to analysis.

It employed “empty pack surveys” which, by its very nature, may suffer from selection bias of sources of litters or incorrect deciphering between counterfeits and legal non-domestic products.

Secondly, the study used a formula which assumed values of too many important variables such as other cigarette companies’ declared and actual volume in the market, which, because of BIR’s disclosure information

Although the artificially depressed prices of some cigarette brands are worrisome, AER asserts that they are not sufficient to automatically conclude that the manufacturers of such brands are already engaged in illicit trade.

“Not only Mighty but also PMFTC’s Jackpot as well as other variants have more or less the same artificially low prices,” said Sta. Ana. At present, PMFTC’s low-end brands sell at around P1.25/stick when Mighty cigarettes typically sells at P1.50/stick. AER sees this price war as an unsustainable strategy to gain market share especially with the application of a unitary tax scheme by 2017.

Lastly, AER also emphasizes that aside from doubling excise tax collections, the Sin Tax Law greatly reduced cigarette consumption. Far from the 3-percent estimate of ITIC, smokers from Angono, Rizal and Cotabato City reduced smoking by 14.3% and 22.9%, respectively, according to AER-DOH surveys in 2013.

More recently, the 2014 Social Weather Stations survey on cigarette consumption revealed a drop in smoking prevalence, particularly among the young and the poor.

Despite the questionable nature of the Asia-11 report, AER supports the Bureau of Internal Revenue (BIR)’s effort to pursue an investigation on illicit trade. AER also lauds the latest measure of having stamps on cigarette packs to distinguish the paid packs from the illicit ones.

Action for Economic Reforms (AER) is an independent policy think-tank and a core member of the civil society coalition that pushed for the passage of the Sin Tax Law in 2012.