Illicit trade and tobacco taxation

Transcription

1 A summary of evidence prepared for the Philippines Department of Finance Illicit trade and tobacco taxation 6 August 2012 Geneva, Switzerland Prepared by Mark Goodchild Tobacco Control Economics Tobacco Free Initiative

2 Although the extent of the problem varies by country and region, illicit trade activities exist in almost all countries throughout the world.

3 Price of most sold brand, excise per pack and illicit trade by WHO region, Source: WHO report on the global tobacco epidemic, WHO TaXSiM model for the Philippines, and Euromonitor data on illicit trade.

4 Price of most sold brand, excise per pack and illicit trade in Asia and the Pacific, Source: WHO report on the global tobacco epidemic, WHO TaXSiM model for the Philippines, and Euromonitor data on illicit trade.

5 Although differences in cigarette taxes and prices can be an incentive for illicit trade, other factors can be of equal or greater importance.

6 Price of most sold brand and illicit trade by country, No cross-country evidence of a direct link between high cigarette prices and the amount of illicit trade Sample size of 76 countries. Source: WHO report on the global tobacco epidemic, WHO TaXSiM model for the Philippines, and Euromonitor data on illicit trade.

7 Excise per pack of most sold brand and illicit trade by country, No cross-country evidence of a direct link between high levels of cigarette tax and the amount of illicit trade Sample size of 76 countries. Source: WHO report on the global tobacco epidemic, WHO TaXSiM model for the Philippines, and Euromonitor data on illicit trade.

8 Other contributory factors Weak governance and lack of high-level commitment to tackle the problem. Ineffective customs and tax administration. Existence of informal distribution channels. Porous borders (ease of entry into country). Trade barriers/restrictions (e.g. smuggling into closed markets).

9 Illicit trade increases with corruption, 2009 Smuggling (as % of legal sales) and WB corruption index in 2009 Smuggling as a % share of legal consumption 50% 40% 30% 20% 10% 0% y = x R 2 = 0.05 UAE BOL LVA LAO EST UZB LBN SGP AZE GRC BEL FIN RUS DNK (most corruption) Corruption Index (least corruption) Sources: World Bank corruption index, Euromonitor and ERC databases.

10 Organized smuggling routes from re-exporting and transiting countries, 1999 Source: Yurekli and Sayginsoy 2008 in print Applied Economics.

11 Many countries are increasing tax rates on cigarettes and earning higher tax revenues, despite the presence and/or threat of illicit trade..and an increasing number are protecting their tax revenues by introducing measures to control illicit activities and monitor production.

12 Stamp-applied tracking system has helped Turkey raise taxes without higher illicit trade (Stamp-applied tracking system introduced in 2007)

13 Illicit trade falls in the UK despite price growth Sources: UK Customs and Excise 2010 and Euromonitor 2011.

14 Italy and Spain have been successful at reducing smuggling activities Illicit trade was as much as 15% of the market in both Italy and Spain during the early 1990s. Both countries intensified their efforts to address the smuggling problem including through: I. Scaling-up country cooperation (e.g. joint customs activity and intelligence gathering). II. Introducing anti-smuggling legislation. III. Imposing higher penalties on smugglers. Illicit market share has been reduced to just 2% in Italy and 6% in Spain.

15 Illicit trade falls in Italy despite higher taxes and prices on cigarettes Sources: Euromonitor and ERC databases.

16 Other examples of monitoring and enforcement from around the world Bangladesh 2011: Finance Minister establishes a "Tobacco Tax Cell" within the Ministry to monitor domestic producers. Brazil 2007: introduces system for monitoring cigarette production leading to reduction in tax evasion of US$ 100 million in Turkey 2007: Introduces its electronic stamp-applied tracking system on tobacco and alcohol products. EC 2004: EC takes several tobacco companies to court over smuggling and PMI agrees to pay the EC $1 billion over 12-years and to control smuggling of its brands. China 2002: Ministry of Public Security and STMA jointly launch a crackdown on counterfeiting (2,476 operations closed and 4.97 billion counterfeit cigarettes seized).