Consumption of counterfeit cigarettes jumped by more than a third in the U.K. in 2021, reports Talking Retail, citing a recent KPMG study commissioned by Philip Morris International.
As a result, the number of counterfeit cigarettes smoked in the U.K. topped 3 billion for the first time since the study began 16 years ago.
“The KPMG report highlights how both illicit tobacco and vapes are becoming increasingly prevalent in the U.K., with the situation getting steadily worse over the past five years,” said Cem Uzundal, head of Philip Morris’ U.K. field force.
“There’s a real job to be done to tackle this issue by authorities, tobacco manufacturers and even convenience retailers, who can help by reporting stores selling illicit tobacco in their area.”
“The KPMG report underlines what my team see on British streets month in, month out: illicit products—particularly counterfeits—widely available for sale,” said Will O’Reilly, a former Scotland Yard detective chief inspector who carries out regular test purchases of illicit products on behalf of Philip Morris.
“Organized criminal groups appear to consider the risk of being caught well worth the prospect of making around £1.5 million profit [$1.79 million] for every container load they bring into the U.K.”
Several tobacco companies are challenging Pakistan’s Federal Board of Revenue (FBR) in court, seeking relief from the country’s new track-and-trace system, according to reports in The International News and Dawn.
Starting this month, all tobacco companies operating in Pakistan must implement the country’s track-and-trace system. Tobacco products may enter the domestic market only if they carry stamps and unique identification markers.
To date, only three tobacco manufacturers—Pakistan Tobacco Co., Philip Morris International and Khyber Tobacco Co. (KTC)—have installed the track-and-trace system and made it operational. KTC Chief Technology Officer Shahid Sattar said the system would help the company enhance its presence in the Pakistani market and improve the quality of its products to international standards.
The companies challenging the FBR want to continue selling old stock. The agency instructed them to discontinue such sales on June 30.
The tobacco companies that are already operating the system maintain that it will succeed only if all players implement it. According to critics, the companies challenging the FBR instructions engage in illicit trade and fear the track-and-trace system will expose their illegal activities.
In addition to the multinationals, there are at least 21 tobacco companies operating in Pakistan, including 18 in Khyber Pakhtunkhwa and three in the country’s federally and provincially administrated tribal areas.
Out of the PKR134 billion ($645.47 million) in taxes collected from the tobacco industry in 2020, PKR131 was paid by two companies, which together held a 65 percent market share.
The United Kingdom has a new track-and-trace system for tobacco products, established and operated by Dentsu Tracking. Launched on July 1, the system provides the U.K. government with digital, data-driven traceability functionality across the entire tobacco supply chain. The system is part of the U.K.’s anti-illicit trade strategy, supporting Her Majesty’s Revenue & Customs’ (HMRC) efforts to fight illicit trade.
“We are honored to work with HMRC and help the U.K. in the fight against illicit tobacco trade,” said Philippe Castella, managing director of Dentsu Tracking, in a statement. “Our digital system is tailored to the policy objectives of HMRC and designed to address the specific characteristics of the U.K. market. This ensures that the system provides HMRC with the highest level of visibility and government control over the entire U.K. tobacco supply chain.”
The new track-and-trace system leverages the advantages of digital technology to enable the movement of legal tobacco products to be monitored (tracking) and allow U.K. authorities to detect and fight the different forms of illicit trade, thereby curbing the circulation of non-compliant products for which taxes have not been paid and that do not meet all legal requirements in terms of content and packaging. Reducing the circulation of non-compliant tobacco products enables the U.K. to increase national tax collection while protecting citizens and legitimate businesses.
The new system was designed in line with all applicable U.K. and international laws, including full compliance with the FCTC Illicit Trade Protocol that requires parties to ensure the tracking and tracing of tobacco products along both manufacturing and key distribution points.
By integrating sophisticated data analytics tools, Dentsu’s system transforms the collected supply chain data into meaningful information that helps U.K. authorities to identify potentially fraudulent events. The new U.K. system supplies HMRC with real-time detailed analyses, statistics and alerts, which some stakeholders have already described as “groundbreaking,” according to Dentsu.
“At Dentsu Tracking, we strongly believe that the added value of tracking and tracing is only as strong as the level of supply chain insights that the system delivers to government bodies,” said Jan Hoffmann, director of government business. “Collecting data therefore is not enough. We generate powerful business intelligence that will help the U.K. authorities to carry out targeted controls and real-time investigations in the field.”
All businesses engaged in the manufacture, importation, exportation, storage, distribution and sale of tobacco products into and through the U.K. supply chain must use the new track-and-trace system. Track-and-trace requirements have existed in the U.K. since May 2019 and currently apply to cigarettes and roll-your-own tobacco. All other tobacco products will have to comply with the requirements from May 20, 2024.
Dentsu Tracking was appointed as provider for establishing and operating a new U.K. tobacco track-and-trace system in November 2021 by means of a public procurement process. Dentsu replaces the previous provider De La Rue.
RELX International and SABA IP recently trained officials from the Abu Dhabi Customs Authority and Department of Economic Development to help them combat the illegal trade in vapor products.
The session covered topics such as distinguishing legal products from illegal ones, raising awareness about the consequences of the illegal e-cigarette trade and sharing research and intelligence. The program also discussed product authentication, tracking and tracing technologies.
According to RELX, contraband and counterfeit e-cigarettes are produced in unregulated facilities and pose a serious health risk to legal age consumers and minors. Counterfeit e-cigarettes often use inferior e-liquid formulas; capsules frequently leak and provide misleading information about the nicotine dosage in the capsules.
“The training sessions for the Abu Dhabi Customs Authority, Department of Economic Development and Ras Al Khaimah Customs Authority showcase RELX International’s commitment, as a responsible company, to working with local authorities, investigation firms and e-commerce platforms to identify and remove contraband and counterfeit e-cigarette products from the market, as part of the RELX Pledge,” said Robert Naouss, external affairs director, MENA and Europe at RELX International, in a statement.
In 2019, RELX International established the Golden Shield Program to prevent the production and sale of illicit goods. Since its inauguration, the program has helped remove more than 550,000 fake products from the market, plus over 77,000 websites.
Additional training sessions are planned in countries across the Middle East, including in Egypt and Jordan. Earlier this year, RELX concluded a training session with customs officials in Saudi Arabia.
Illicit cigarette consumption increased by an estimated 3.9 percent, or 1.3 billion cigarettes, in 2021, reaching 35.5 billion cigarettes consumed across the European Union, according to a KPMG study commissioned by Philip Morris International. Meanwhile, the study estimates that total EU cigarette consumption declined over the same period.
The increase of illicit consumption was largely driven by an estimated 33 percent increase in counterfeit consumption in France, where it grew to 8 billion cigarettes last year. Overall, France remains the largest market for illicit cigarettes in the EU, with a total of 15.1 billion illicit cigarettes consumed in 2021, comprising 29 percent of total cigarette consumption in the country, which represents a significant growth from 13 percent in 2017.
“The findings of the KPMG Report should be a real wake-up call. It’s alarming that in countries that maintain high excise taxes on cigarettes, such as France, instead of driving a decrease in smoking prevalence, we see a rise in counterfeit cigarette consumption. In fact, in France in the past five years, while the average price of a pack of legitimate cigarettes has increased by more than half, the number of adult smokers has only marginally decreased,” said Gregoire Verdeaux, senior vice president, external affairs, PMI, In a statement.
“But there is also hope. Other EU countries have adopted differentiated policies on alternatives to cigarettes that support the continued decline of cigarette consumption while reducing illicit trade, and they are already yielding encouraging results. The European Commission in Brussels should make this the foundation for the future.”
The annual KPMG report focuses on the consumption and flows of illicit cigarettes in 30 European countries—the 27 EU member states, as well as the United Kingdom, Norway, and Switzerland—and indicates that had these cigarettes been legally purchased, an additional €10.4 billion ($10.93 billion) in taxes would have been collected by governments in the EU.
Tax revenue losses will limit governments’ ability to invest in areas such as public safety, public services, or infrastructure, at a time when people across Europe are also facing higher prices of many basic goods. The risk that more adult smokers—especially those among the lower-income population—turn to illicit trade is now significant. This creates an even more urgent need to ensure that smoke-free alternatives are available and affordable for all, to enable them to make a better choice instead of buying from the black market,” said Verdeaux.
Consumers need to be incentivized so that they don’t have to turn to illicit cigarettes. This means focusing on education and awareness, and ensuring the availability of better alternatives.
The KPMG report also shows that roughly half—16 out of 27—of the member states experienced declining or stable consumption of illicit cigarettes in 2021. Among these countries, Poland saw one of the largest declines in illicit volumes, showing a 3.7 percentage point decrease in its share of illicit cigarette consumption.
“The decreasing consumption of illicit cigarettes in countries like Poland is remarkable and reassuring. It showcases the impact of effective law enforcement against criminals profiting from illicit trade in a market where better alternatives to smoking are available and more affordable to adult smokers. These are outcomes other countries should aspire to emulate,” said Alvise Giustiniani, vice president, illicit trade prevention. “It has never been more important to provide in particular the most vulnerable in society with access to information, as well as to develop and implement innovative policies that truly include everyone and facilitate access to better alternatives.”
Counterfeit consumption was the main driver of illicit trade in the EU; consumption of fake cigarettes reached an estimated total of 12.3 billion—accounting for 34.6 percent of total illicit consumption. The study indicates that due to continued travel and border restrictions related to the Covid-19 pandemic, organized criminal groups shifted their focus toward manufacturing counterfeit cigarettes directly within EU borders. Interviews conducted by KPMG with seven different law enforcement agencies found that illegal manufacturing sites are increasingly moving west in Europe to get closer to higher-priced end markets, such as France and the U.K.
The continued growth of a black market where fake and unregulated cigarettes are easily available seriously undercuts legitimate efforts to reduce and eventually eliminate cigarette smoking.
“We are convinced that consumers need to be incentivized so that they don’t have to turn to illicit cigarettes. This means focusing on education and awareness, and ensuring the availability of better alternatives, such as scientifically substantiated smoke-free products,” said Verdeaux. “Making them accessible as a better option for millions of adult smokers in Europe who don’t quit should be our common top priority.”
Pakistan’s revenue losses from the illicit cigarette trade increased by 53 percent in two years, reports The Nation, citing a report by Oxford Economics. In fiscal year 2020-2021, the state missed PKR77.8 billion ($380.7 million) in tax collections due to illicit cigarette sales, compared with PKR50.9 billion in 2018-2019.
Oxford Economics said that illegal cigarettes account for 38 percent of total consumption in Pakistan, compared with 32 percent in 2018-2019. The vast majority of illegal cigarettes (90 percent) are locally produced.
The value of tax evaded by illegal cigarettes in Pakistan in 2021 amounts to 58 percent of the total tax revenues collected from legitimate sales in the previous financial year. To place this in context, it is equivalent to more than double the government’s education expenditure in 2020-21.
According to Oxford Economics, the rise in the illicit cigarette market share in recent years coincided with a sharp rise in the excise rates. Excise rates on most legal cigarettes nearly doubled following the September 2018 supplementary budget and the June 2019 Federal Budget. Tier 2 excise rates—which represent 92 percent of the total industry volume—rose from PKR854 per 1,000 pieces to PKR1,650 per 1,000 pieces.
Due to the instability of revenues and growing illicit share, Pakistan kept cigarette excise taxes unchanged in 2020-2021.
Chinese authorities seized 2.1 million counterfeit cigarettes, nearly 100,000 metric tons of leaf tobacco and about 1,700 cigarette-making machines between 2017 and 2021, reports China Daily. They also detained 44,000 suspects. The law enforcement actions prevented CNY100 billion ($15 billion) in lost tax earnings, according to the Ministry of Public Security (MPS), which coordinated its campaign with the State Tobacco Monopoly Administration (STMA).
The joint crackdown targeted the production and distribution of counterfeit cigarettes in key areas. Authorities focused on disrupting the criminal networks’ logistics, strangling the supply of production materials for fake cigarettes at the source.
Officials insisted the crackdown on counterfeiting will continue, with emphasis on combating activities such as illegal sales of leaf tobacco and illegal transport of cigarettes, and on cutting off the underground supply chain for the production and sale of counterfeit cigarettes.
Philip Morris International has called for action against the illicit cigarette trade in Saudi Arabia, reports Arab News. Illicit trade currently accounts for between 17 percent and 25 percent of the tobacco market in Saudi Arabia.
Philippe Van Gils, PMI’s regional head of illicit trade prevention for the Middle East, warned that the illegal tobacco trade poses a risk not only to government revenues, but also to public health.
“Billions are going into the pockets of illicit organizations instead of the governments where the latter could use the money for development and other purposes,” Van Gils said, adding that illicit traders also neglect sanitary standards in manufacturing or shipping
Van Gils stressed the importance of building awareness of the issue in the private sector and among consumers. He said that collaboration is crucial due to the magnitude of the problem. “No one can fix this issue alone; it requires a public-private partnership,” he said.
He further said that the private sector could address this issue using technology and better controls on its supply chain operations. “It’s about knowing your customers, monitoring the volume of products you sell to ensure it responds to legitimate demand and leveraging technology to track your product down the supply chain,” he said.
Governments, in turn, should not only enact effect regulation, but also enforce it. To help authorities distinguish illicit products from genuine ones, PMI has held several training sessions this year, including for the Saudi Authority for Intellectual Property.
According to Van Gils the Covid-19 pandemic accelerated illicit trade on the dark web. He said the solution is to reduce illicit tobacco while promoting better alternatives, specifically heated tobacco products such as e-cigarettes.
“Our position is that if you don’t smoke, don’t start. But if you can’t quit, switch to better alternatives that are now available thanks to technological advancements,” added Van Gils.
RELX International concluded a training session with Saudi Customs Authority and Saudi Authority for Intellectual Property officials on May 25. The training aimed to complement Saudi officials’ efforts in fighting the illicit trade of contraband and counterfeit e-cigarettes in the kingdom.
The training covered several key aspects: discerning legal products from illegal ones; raising awareness and educating people about the consequences of the illegal trade of e-cigarettes; sharing research and intelligence on identifying illegal trading activities; collaborating with government officials to track and confiscate counterfeit products; and developing and implementing product authentication, tracking and tracing technologies. To facilitate the effectiveness of the training, RELX International collaborated with leading intellectual property firm SABA IP.
As part of RELX’s ongoing commitment to protecting the rights of legal e-cigarette users, and fighting the illicit trade if e-cigarettes under the Golden Shield Program, additional training sessions are planned in the United Arab Emirates, Egypt and Jordan.
“As a responsible company, RELX frequently works with local authorities, investigation firms and e-commerce platforms to identify and remove contraband and counterfeit e-cigarette products from the market as part of the RELX Pledge,” said Robert Naouss, external affairs director, MENA & Europe at RELX International, in a statement.
“We are pleased to have been able to complete an in-depth training session with relevant Saudi authorities and applaud their tireless commitment to ensuring consumers in Saudi Arabia have access to authentic and reliable e-cigarette products at fair prices.”
RELX established the Golden Shield Program in August 2019 to help prevent the production and sale of the illicit goods. Since its establishment, the initiative has helped remove more than 550,000 fake products from the market, as well as over 77,000 websites.
Illegal tobacco traders did brisk business in the Philippines during the Covid-19 pandemic, reports The Manila Bulletin, citing data presented during a recent webinar organized by the National Tobacco Administration (NTA).
According to the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC) revenue loss from illegal tobacco trade went up by 662 percent to PHP3.1 billion ($59.3 million) in 2020 from just PHP406.9 million in 2019.
During the webinar, Representative Jericho Jonas B. Nograles, said the BOC seized PHP132.56 million worth of fake cigarettes. According to Euromonitor International, about 13 percent of the total cigarettes sold in the Philippines are illegal.
“What happened in the last few years? Number one: unemployment and a decrease in income have put pressure on the household budget. It’s difficult to stop smoking, but it’s easy to spend money. People want to save money amidst rising prices of commodities and decreasing household income,” Nograles explained at the NTA webinar.
The pandemic also made it difficult for authorities to crack down on illegal activity, according to the BIR. “We were not able to operate on a massive implementation because we cannot go into some areas that are under lockdown,” said Attorney Beverly Milo, head, revenue executive assistant for the BIR’s Large Taxpayers Service Excise.
In Jan. 2022, cigarette prices went up due to a PHP55 percent increase in excise tax. A study by management consulting firm Alvarez and Marsal cited a 97 percent correlation between taxes and tobacco prices, in which the illegal tobacco trade grows as the legal options become more unaffordable.
Tobacco products like cigarettes are among the most smuggled goods in the ASEAN region. According to the World Bank, the global trade of illicit tobacco is worth between $40 billion and $50 billion.
The Philippines neighbors struggle with illicit tobacco trade, too. Malaysia lost out on tax earnings of approximately MYR1 billion ($228,83 million) in 2020.
All ASEAN member states save for Indonesia are signatories of the WHO Convention on Tobacco Control. This requires countries to suppress the illegal tobacco trade. However, no ASEAN states are part of the Protocol to Eliminate Illicit Trade in Tobacco Products, which requires cooperation and information sharing between countries, including international organizations and customs offices.
Nograles recommended strengthening enforcement and ramping up cooperation as measures to eradicate the illegal tobacco trade. This should include improving intelligence sharing between agencies and implementing stringent frameworks for the prosecution and conviction of illegal traders,” he said.
