Category: Illicit Trade

‘Excessive Tax Hike Could Spur Illicit Trade’

Photo: Taco Tuinstra
Indonesia’s above-inflation tax hike could fuel illicit trade and depress government revenue collections, according to Apindo, a leading employers association, reports Tempo.
To discourage smoking, the government last year approved a 10 percent increase in excise taxes on cigarettes for 2023–2024.
Despite the tax hike, the number of cigarette factories has increased significantly in Indonesia. Data from the Directorate General of Customs and Excise revealed a surge from 1,214 factories in early 2022 to 1,723 factories in June 2024.
Meanwhile, Statistics Indonesia (BPS) reported a 28.62 percent smoking rate among Indonesians aged 15 and above in 2023. The largest number of smokers was reportedly in the 35–39 age group at 35.21 percent while the youth group (15–19 years) had a rate of 9.62 percent. The Health Ministry’s 2023 Indonesian Health Survey found 70 million active smokers, including 7.4 percent aged 10–18 years.
August 12, 2024
Jordan Joins Protocol to Eliminate Illicit Trade

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Jordan has joined the Protocol to Eliminate Illicit Trade of Tobacco Products, reports The Jordan Times.
Health Minister Firas Hawari described the step as an important milestone for the success of the National Action Plan 2024-2026, which is part of the broader National Tobacco Control Strategy 2024-2030.
The Protocol is based on Article 15 of the Framework Convention on Tobacco Control, to which Jordan was one of the first countries to accede.
This article addresses the threats posed by illicit trade and the measures that countries must take to prevent it. The protocol aims to strengthen cooperation between countries, facilitate the exchange of information, and enforce effective measures.
August 1, 2024
PMI Urges Collaboration Against Illicit Trade

Photo: PMI
International collaboration, stringent regulation and enforcement are the cornerstones in the fight against illicit trade, according to Rodney van Dooren, head of illicit trade prevention at Philip Morris International.
Speaking at a trademark and brand protection conference, held in Delhi, July 23-24, van Dooren pointed out how prohibition has not been a viable option, while regulation and enforcement would be the solution to curb illicit trade.
“Approximately 12 percent of the global cigarettes consumed are illicit, which impacts governments across the globe to the tune of $40.5 billion in tax losses, van Dooren said.
“According to the Euromonitor report, one in four cigarettes consumed in India is illicit which translates to close to $2 billion in tax losses. There are various smuggling routes around the world for both counterfeit and contraband products, making this challenge not a domestic but a transnational issue that requires transnational solution.”
Van Dooren urged authorities to better leverage the existing free trade agreements and provisions within the World Trade Organization to raise awareness with transit and source countries.
“The next recommendation is to promote harmonization of existing gold standard regulations around ASEAN, supported by implementing rules, including the law enforcement agency that has jurisdiction and the related penalties,” he noted.
“The adoption of the regulation requires manufacturers and exporters to ensure that the goods being exported comply with the destination market regulation. Additionally, in transshipment, adopt regulation that allows for inspection of suspicious shipments and exercise jurisdiction by Customs or any appropriate law enforcement agency on IP-infringing violations. Lastly, strengthen domestic enforcement effectiveness by enhanced cooperation with the legal industry and inter-law enforcement agency cooperation.”
August 1, 2024
Altria Worried About Illicit Pouches

Photo: Tobacco Reporter archive
Altria Group is worried about growing illicit sales of modern oral products in the United States, reports Reuters. The company has shared data on illegal nicotine pouches with the U.S. Food and Drug Administration.
“This illicit market echoes the beginning of the illicit e-vapor market several years ago,” Altria CEO William Gifford told analysts during a financial update. “We believe it is critical that the FDA acts decisively to regain control of the oral nicotine pouch category to prevent another widespread illicit market from taking hold,” he added.
Altria said it had identified more than 350 unique illegal nicotine pouches on sale, with new brands launching every month.
Gifford said Altria had also observed an increase in illicit cigarettes, one survey of discarded packs in California finding that some 25 percent were non-U.S. brands, mostly originating from duty-free channels or China.
Last month, Philip Morris International said it had observed sales of its nicotine pouches intended for the Scandinavian market on sale in the United States.
Recently, British American Tobacco’s CEO expressed concern about the continued lack of enforcement against unauthorized single-use vapes in the U.S., which makes it difficult for authorized brands to compete in that market.
August 1, 2024
Tracking Legislation Advances in Philippines

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The Philippines’ House ways and means committee on July 23 approved legislation to enhance the tracking of tobacco products through the supply chain, reports Business World.
Under the measure, tobacco companies will be required to implement a digital tracking system on cigarette products to help prevent illicit trade.
Tobacco duty avoidance has caused the government to “lose” around PHP220 billion in revenue over the past four years, according to Representative Jose Ma. Clemente S. Salceda, who heads the House ways and means committee.
The legislation would require manufacturers to fix stamps to cigarette packs, vapes and related products, allowing authorities to determine where and when the product was manufactured.
“We would see where [the cigarette] came from because the tracking system allows us to trace it,” Salceda was quoted as saying. “We will see who brought it here and who sold it, all because of the tracking system.”
The approved legislation also requires tobacco manufacturers and importers to register their products and equipment.
July 24, 2024
EU Seized 616 Million Illicit Cigarettes in 2023

Photo: Europol
The EU anti-fraud office’s (OLAF) and member state authorities seize 616 million illicit cigarettes, 140 tons of raw tobacco and 6 tons of water pipe tobacco in 2023, preventing the loss of over €151 million to EU and national budgets.
It its 2023 report, OLAF details its operations against fraud in multiple areas, including the tobacco trade.
Of the 616 million seized illicit cigarettes, 140.6 million comprised illicit production within the EU. And additional 110.1 million cigarettes were seized in Serbia and 34.25 million were seized in Israel.
Of the cigarettes seized at EU borders, the largest number (84.62 million) came from Turkey. Other prominent origins included the United Arab Emirates (76.18 million cigarettes), Montenegro (62.23 million) and Indonesia (52.5 million).
July 17, 2024
Cigarette Smuggling Complicating Gaza Aid

Image: Robert
Organized gangs have been attacking humanitarian aid convoys in Gaza to retrieve cigarettes smuggled inside the shipments, reports The New York Times.
Following the war between Israel and Hamas, cigarettes have become increasingly scarce in tightly blockaded Gaza, with smokers paying up to $30 for a single stick.
To evade Israeli inspections, smugglers have been hiding cigarettes in sacks of United Nations-donated flour, diapers and even a watermelon, according to aid agencies and an Israeli military official.
Officials said that most of the trucks bearing cigarettes appeared to come from Egypt, which rerouted trucks arriving from Egyptian territory through Kerem Shalom after Israel captured the Rafah border crossing in early May.
Convoys ferrying U.N. aid are often an easier target than private businessmen, who are willing to pay hundreds or thousands of dollars in protection money to guards or to the organized gangs themselves.
July 12, 2024
New Reports Exposes Illegal Tobacco Trade
Photo: IvanSemenovych
A new study, titled “Fighting the Dark Underworld: How the illegal trade in tobacco threatens to overwhelm us,” by Intrinsic Insight and commissioned by Japan Tobacco International, sheds new light on the pervasiveness of organized crime within global society, focusing on four countries with high levels of illicit tobacco trade: Canada, France, Philippines and the United Kingdom.
The report examines how unstable geopolitical environments, fragile economies and a lack of serious deterrents create the ideal conditions for a surge in criminal activity and increased profits for criminal networks.
The report highlights key indicators—found across the four countries—that are allowing illegal trade to flourish.
“A combination of factors ranging from poor border controls and ineffective penalties to corruption, excessive taxation and legislation, are contributing to both the increase in demand for illicit products while making it easier for criminals to grow substantial criminal empires,” said JTI’s global anti-illicit trade operations director Vincent Byrne in a statement.
Cost of living crisis
Compromised living standards are forcing greater numbers of consumers into making difficult lifestyle decisions, creating ripe environments for criminals to push a larger number of smokers towards cheaper illegal channels and illegal products. Buying illegal tobacco products is in danger of becoming normalized behavior, with four in 10 (43 percent) adult smokers surveyed across these four countries now finding themselves comfortable with the idea of buying cigarettes, even if they know they are produced or sold illegally.
Excessive taxation and loss in government revenue
As illegal sales continue to bombard the legal tobacco market, governments are facing a decline in tax revenue. According to the World Bank, governments globally are estimated to be losing out on $40 billion to $ 50 billion annually in excise alone due to consumers being lured into buying illegal tobacco products. According to 88 percent surveyed, governments’ inability to collect tax revenue because of illegal trade is a significant issue.
Rapid technological progress
The criminal shift towards e-commerce and the advancement of artificial intelligence is leading to an increased sophistication of production, distribution and sale of illegal goods. Of those adult smokers surveyed, 14 percent have claimed to have recently purchased illegal tobacco via social channels.
Not cracking down on illegal tobacco trade to curb other serious crime
Not only is the money being lost to governments, thus limiting their capacity to fund public services such as law enforcement and important public services, the illegal tobacco trade is a direct gateway to other serious crime such as people trafficking and terrorism. The study found that policy makers underestimate the extent of the worry for the public, with 50 percent of respondents citing illegal tobacco trade as being a threat to their country, which is close to parity with those citing drugs/narcotics (54 percent) and terrorism (49 percent) as national dangers. The sale of illegal tobacco is not a victimless crime, according to 61 percent of those surveyed.
Existing penalties are not severe enough to deter criminals
More collaboration is needed to crack down on illegal trade and its intricate international criminal networks. According to 61 percent surveyed, authorities are not taking the situation as seriously as they should. The United Nations Office of Drugs and Crime estimates that no more than 2 percent of global shipping containers are inspected, signaling to criminal gangs that illegal trade is a relatively “risk free” enterprise with large financial upsides.
“While the drivers fueling illegal trade are evident in each of the four countries, they have global impact,” Byrne said. “Given the borderless nature of illegal trade, in the future, countries that currently do not have an illicit tobacco problem, are advised to notice the triggers to avoid the onset and spread of criminality linked to illicit trade in their countries.”
A synopsis of the situation in the four countries and consolidation of key report findings includes:
Canada
Contraband tobacco has spread unchecked across the country to the detriment of revenue receipts due to serious disparities in tax harmonization because of Canada’s geography and complicated relationship with First Nation states.
In Canada, the high volume of tobacco products produced by First Nation states is a major anomaly that drives illegal trade there. This bears a similarity to ‘free trade zones’ such as those that exist in places like the UAE. Tobacco produced legally in these zones often ends up in other jurisdictions where it then becomes an illegal product.
The report found that for 57 percent of Canadians, the economy and general cost of living is one of their top five concerns.
Seven out of ten (71 percent) Canadians believe that the proceeds of the illegal tobacco trade should fund law enforcement.
Eight out of ten (81 percent) Canadians believe government should work with industry to combat illegal trade.
France
High levels of taxation, an absence of border controls and issues of affordability caused by rising living costs are having a big impact on the increase in illegal trade. The French government’s cornerstone policy in the run up to this summer’s 2024 Paris Olympics is to remove illegal tobacco sellers from the streets and has pledged to impose stronger fines, penalties, and arrests of street sellers. Cracking down on clandestine factories is also a focus for government.
The report found that one in three members of the French public cite local crime as one of their top five concerns.
Seven out of ten (76 percent) French nationals feel that the sale of illegal and fake tobacco by street vendors makes their neighborhoods less safe.
Philippines
In a recent reclassification of tobacco as an agricultural product, the Philippines Congress has passed amendments to the country’s agricultural bill that established the smuggling of tobacco as an act of economic sabotage. This amendment, which is expected to be signed into law by the President, includes harsher penalties and fines, and it has the potential to have a significant impact on smuggling and the illegal distribution of tobacco products in Philippines.
As a result of legislation passed in 2013 (the RA 10351, known locally as “the sin tax” laws), revenues raised through tobacco sales have been used to finance public services. Several independent studies have shown that these laws have created an increase in demand for illegal tobacco and revenue losses for the government.
United Kingdom
While the U.K. is experiencing its largest ever cost-of-living crisis, with public debt standing at over 184 percent GDP, and with 11.7 million of the U.K.’s 67 million population living in poverty according to official figures, the U.K. government is scrambling for revenue.
The customs and revenue service estimates that in 2021, the loss in revenue to the U.K. exchequer due to illegal tobacco trade was £2.5 billion ($3.24 billion), money that could be used to fund the U.K. economy and social programs, instead of being funneled directly into criminal networks.
While many U.K. authorities, including Customs & Excise, Trading Standards, Border Force, the Police, and the National Crime Agency, have significant roles to play in tackling illegal trade, oftentimes they have conflicting and overlapping responsibilities and dwindling resources.
Harsher deterrents and penalties are needed for criminals who are only too eager to exploit these loopholes.
The study found that 72 percent of U.K. adult tobacco consumers would be happier paying the tax on tobacco products if the government spent more of these taxes on law enforcement.
In the report, a multi-faceted approach for tackling the “dark underworld” includes:
Increased cooperation between governments and law enforcement at both international and national levels. This includes information sharing between industry and authorities.
In the case of tobacco, there needs to be a concerted effort to increase the fines and punishments for those producing, distributing, and selling illicit products to increase the risk and consequences for criminals. This should be coupled with stronger enforcement.
Law enforcement agencies should also explore using powers other than anti-smuggling and anti-counterfeiting laws, for example, anti-money laundering, anti-income tax evasion and anti-organized crime laws.
Reasonable and moderate taxation is vital to maintain affordability of legal produc
June 25, 2024
Cigarette Smuggling Impeding Gaza Aid

Image: Robert
Restrictions on imports of nonessential goods into Gaza have turbocharged cigarette smuggling, reports The Wall Street Journal.
Aid trucks and storage depots have become targets for Palestinian smugglers seeking to retrieve illicit smokes stashed inside shipments by their accomplices, say U.N. and Israeli officials. Other local criminals are also attacking vehicles they suspect have cigarettes hidden somewhere on board, they say.
Cigarette prices have soared since Israel limited imports into Gaza to essential goods—which don’t include cigarettes—after Hamas’ Oct. 7 attacks. Cigarettes sell for as much as $25 apiece in isolated Gaza.
Criminal attacks on aid convoys have reportedly become so severe that over a thousand truckloads of aid have been left sitting on the Gaza side of the Kerem Shalom border crossing with Israel.
A UN official described cigarettes as “the new gold” in Gaza.
June 20, 2024
Industry Cheers Tax on Acetate Tow

Photo: Tobacco Reporter archive
Legally operating tobacco companies have welcomed Pakistan’s plan to impose a federal excise duty (FED) on acetate tow, reports The Express Tribune.
While presenting the federal budget in the National Assembly on June 12, 2024, Finance Minister Muhammad Aurangzeb proposed imposing an FED of PKR44,000 ($158) per kg on acetate tow, a basic raw material used in manufacturing filters.
Aurangzeb said the recommended FED would burden only the informal sector. Because Pakistan does not produce acetate tow, cigarette manufacturers import the material from other countries.
During his presentation, the minister lamented the widespread availability of illicit, smuggled and tax-evaded cigarettes in Pakistan.
The market share of illicit cigarettes has grown to 63 percent at present from around 40 percent a few years ago. While at least 24 cigarette manufacturers operate in Pakistan, less than a handful are registered with the government. The two leading formal tobacco companies alone pay 98 percent of the total tax collected from the cigarette industry. Some politicians are reportedly involved in the manufacture of undocumented cigarettes.
One official said the government could potentially collect PKR550 billion from cigarette manufacturers if it succeeds in bringing the out-of-tax-net makers into the tax net.
Earlier governments imposed heavy taxes on cigarettes to discourage people from smoking. However, instead of decreasing cigarettes sales, the strategy mostly diverted smokers to non-tax-paid cigarettes.
Cigarette manufacturers have been urging the government to crack down on illicit cigarette sales and more forcefully enforce the country’s track-and-trace system. They say that half-hearted implementation has badly hit the formal sector while providing an opportunity for illicit cigarette manufacturers to thrive.
June 14, 2024