New WB report attests high tobacco taxes have only a small role in illicit trade

 

New WB report attests high tobacco taxes have only a small role in illicit trade

 

Bangkok, 4 February 2019: A major new World Bank (WB) report entitled Confronting Tobacco Illicit Trade: A Global Review of Country Experiences underscores that tobacco taxes play only a minor role in illicit trade and that addressing illicit trade and raising tobacco taxes are mutually reinforcing actions.

 

“The threat of illicit trade is a false argument that the tobacco industry always uses to oppose effective tobacco tax increases. This new WB report exposes the flaws of this argument. Worldwide evidence shows that illicit trade is much less in countries with high tobacco taxes and prices than in countries with low tobacco taxes and prices. Non-price factors such as corruption, weak regulatory frameworks, and the availability of informal distribution networks appear to be far more important factors. Tobacco companies simply want to keep cigarettes cheap and affordable to the youth and the poor,” said Dr. Ulysses Dorotheo, Executive Director of the Southeast Asia Tobacco Control Alliance (SEATCA).

 

The report states, “Countries as different in levels of economic and institutional development as the United Kingdom, Kenya and Georgia have all successfully improved the effectiveness of their tobacco tax administration and, by doing so, reduced tobacco illicit trade while increasing tobacco taxes and tobacco tax revenues.”

 

Four bills proposing to increase tobacco taxes are currently being deliberated in the Philippine Senate, where some legislators use the same argument as the tobacco industry– that increasing tobacco taxes will worsen illicit trade. Similar scenarios are happening in Cambodia, Malaysia, Myanmar, and Vietnam.

 

Like in many other countries, the Philippine case study presented in the report documents how tobacco tax reforms implemented since 2013 have generated significant government revenues and reduced smoking prevalence, even as illicit trade was reduced due to robust campaign led by the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC), employing a wide range of enforcement tools aligned with the WHO Framework Convention on Tobacco Control (FCTC) and its Protocol to Eliminate Illicit Trade in Tobacco Products. These include the affixture of revenue stamps, profiling, licensing, monitoring and surveillance of taxpayers and importers, use of x-ray machines and other technology, audit programs and the imposition of stiff penalties for violators.

 

Professor Anna Gilmore from the University of Bath and one of the co-authors of the UK case study said, "The World Bank report proves that tobacco industry data and claims about smuggling cannot be trusted. It also highlights the industry's appalling history of involvement in tobacco smuggling. As countries move to implement supply chain controls and track and trace systems to address smuggling it is therefore vital they ensure these systems are independent of the tobacco industry.”

 

“All governments and policy makers should be reassured by this report and intensify their campaign to raise tobacco taxes while reducing illicit tobacco,” added Dorotheo.

 

In the Philippines, tobacco tax revenues amount to about PHP 120 billion annually, while the healthcare costs for four major tobacco-related diseases are estimated at PHP 210 billion annually.

 

Contact:

Wendell C Balderas, Media and Communications Manager – SEATCA

Email: wendell@seatca.org | Mobile: +63 999 881 2117 ##

 

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About SEATCA 

 

 
SEATCA is a multi-sectoral non-governmental alliance promoting health and saving lives by assisting ASEAN countries to accelerate and effectively implement the evidence-based tobacco control measures contained in the WHO FCTC. Acknowledged by governments, academic institutions, and civil society for its advancement of tobacco control movements in Southeast Asia, the WHO bestowed on SEATCA the World No Tobacco Day Award in 2004 and the WHO Director-General's Special Recognition Award in 2014.

 

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The report includes a comprehensive analysis of how the UK brought the illicit trade under control while simultaneously implementing annual increases in taxes. In the 1990s the tobacco manufacturers were selling vast quantities of their products to intermediaries who sold them illegally in the UK without tax being paid.

 

From 2000 onwards the UK Government implemented a comprehensive anti-smuggling strategy while continuing to increase taxes. Since then the illicit market share for manufactured cigarettes has fallen from 21% to 15%, and from 61% to 28% for handrolled tobacco and revenue losses have been cut from £3.5 billion to £2.5 billion.[2]  Over the same time period the proportion of adults in Britain who smoke has fallen from more than one in four, to fewer than one in six. [3]

 

The World Bank report on tobacco tax administration and reform concludes that:

 

  • To reduce illicit trade in tobacco products, it is both crucial and feasible for all countries to strengthen tax (including customs) administration and enforcement (as the UK has successfully done). 
  • Tobacco taxes only play a minor role in illicit trade.
  • Illicit tobacco kills because it weakens the effect of taxes in reducing tobacco. consumption by increasing the affordability, attractiveness and availability of tobacco.
  • The young and the poor are most affected – cheap and illicit encourage consumption by the most price-sensitive.
  • Illicit trade provides opportunities for Big Tobacco to misinform public opinion and influence public policy – the industry routinely uses inflated estimates of the illicit trade to campaign against tobacco tax increases [5]; and goes on to encourage:
  • Implementation of the WHO Framework Convention on Tobacco Control (FCTC) guidelines on tobacco taxation and the Protocol on illicit trade.

 

 

The Protocol on illicit trade [4] is designed and was developed to prevent orchestration of cigarette smuggling by the tobacco transnationals. By the start of this century a third of global cigarette exports were going missing and the industry’s own documents showed that smuggling was a core part of the tobacco manufacturers’ business strategy, used to undermine government tax policy, a strategy that continues to this day. [6]

 

The Protocol came into force in 2018, and requires, among other things, the implementation of a global ‘Track and Trace’ system to monitor all cigarette packs.  The UK is a party to the Illicit Trade Protocol and a ‘Track and Trace’ system for all manufactured cigarette and handrolled tobacco packs is being introduced for all products manufactured for sale in the UK from 20th May 2019 as part of a Europe-wide system.[7]

 
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