Category: Illicit Trade

  • PMI Urges Action Against Illicit Trade

    PMI Urges Action Against Illicit Trade

    Photo: alexlmx

    Philip Morris Pakistan Limited (PMPKL) has urged action against the growing presence of tax-avoiding products on the country’s tobacco market, reports  The Express Tribune

    In a media briefing, PMPKL Head of Communications Andleeb Uroos Ahmed said the company’s income had plunged by 86 percent in 2023. He attributed the decline to last year’s hike in Federal Excise Duty (FED), which doubled cigarette prices, and the subsequent escalation in market share of illicit products.

    This condition has provided an ample opportunity for numerous local illicit cigarette manufacturers, notably in Khyber Pakhtunkhwa and Azad Jammu & Kashmir, to amass substantial market share while contributing minimally to national revenue, according to critics of the tax hike.

    Illicit cigarettes now command a 63 percent market share, causing the exchequer to miss out on  PKR310 billion ($1.11 billion) in tax collections annually.

    While acknowledging government efforts such as the introduction of tax stamps, Ahmed expressed concern about lax enforcement.

    Stressing the interests of tax-paying companies and government’s need for sustainable revenue, she suggested including tax-evading cigarette manufacturers in the tax net instead of burdening the legitimate industry with additional taxes.

    By curtailing tax evasion, she calculated, the Federal Board of Revenue (FBR) can potentially boost revenue collection from the tobacco sector by more than $2 billion.

    “The potential revenue, if realized, could significantly contribute to human development projects and public health initiatives in Pakistan, addressing critical areas where the country lags in human development rankings,” she added.

    She said that anti-tobacco organizations have been misguiding the government by spreading misinformation about the revenue collection potential from the legitimate tobacco industry.

  • SATTA Urges Action Against Illicit Trade

    SATTA Urges Action Against Illicit Trade

    Photo: Tobacco Reporter archive

    The South African Tobacco Transformation Alliance (SATTA) has called for stronger action against the smuggle, manufacture and sales illicit products.

    Last year, South Africans smoked 37 billion cigarettes, but the South African Revenue Service (SARS) taxed only 13 billion. “Illicit tobacco is “the biggest fight we face now,” said Edward Kieswetter, SARS commissioner.

    “Government should allocate more resources to Sars to pursue these complex crimes,” said SATTA spokesperson Zachariah Motsumi in a statement. “As the commissioner pointed out, illicit tobacco products account for 60 percent to 70 percent of cigarette sales and causes tremendous damage to the fiscus.”

    The national fiscus is not the only area affected by the illicit trade. “Cigarette producers like BATSA has to retrench tobacco factory workers and about 500 jobs are currently at risk in third-party logistics companies that transport their products,” said Motsumi. BATSA has already cut 584 jobs due to a 40 percent decrease in [legal] cigarette sales from 2020.

    “People are not smoking less—it is the sale of legal cigarettes that decreased,” said Motsumi. “The net effect of this is twofold: It has devastated tax collection and decimated the legal tobacco sector.”

  • Contraband Crackdown to Boost Russian Budget

    Contraband Crackdown to Boost Russian Budget

    Photo: Sabphoto

    Recent measures to strengthen control over the tobacco market could significantly boost Russia’s budget, reports Interfax, citing comments by Finance Minister Anton Siluanov.

    “Together, we estimated that the volume of funds mobilized from measures to control the tobacco market could reach about 150 billion rubles [$1.64 billion]. This is a significant amount of a resource that we now need,” Siluanov said at an April 2 meeting of Rosalkogoltabakkontrol, which assumed regulatory authority over the production and circulation of  tobacco and nicotine-containing products on March 1.

    Tax-avoiding products accounted for 13 percent of Russia’s tobacco market in 2023, up from 11 percent in 2021, according to Siluanov.

    Rosstat data show that tobacco companies produced 198 billion cigarettes in 2023, which is 10.7 percent less than the previous year. In response to Russia’s invasion of Ukraine, some multinationals have exited the market.

    Tax authorities expect to collect RUB824.152 billion in excise taxes from tobacco products this year.

    As part of its new responsibilities, Rosalkogoltabakcontrol must identify and stop the illegal production and trafficking of tobacco and nicotine-containing products. In addition, it will monitor manufacturer compliance with licensing and mandatory requirements for production, supply and the purchase and transportation of raw materials and finished products.

  • Russian Resolve

    Russian Resolve

    The Chestny ZNAK system tracks items from production to real-time sales. | Photo: CRPT

    A supplier of product labeling solutions claims its technology had helped shrink the Russian illicit cigarette market by a quarter.

    By Marissa Dean

    The black market and illicit trade are hot topics. Confronted with ever-rising taxes, consumers of tobacco products in many markets are increasingly tempted by more affordable black market offerings. Many places are adjusting and implementing technologies and processes to help curb black market trade. Russia is one of these areas, having recently been listed by the World Health Organization among the countries with policies providing the highest level of protection for its citizens from tobacco.

    During a side event at the third Meeting of the Parties (MOP3) to the Protocol to Eliminate Illicit Trade in Tobacco Products, officials gave a presentation on Russia’s Chestny ZNAK track-and-trace system. The event, which took place on Feb. 13 in Panama, was aimed at familiarizing the parties “with proven approaches to ensuring traceability of tobacco products in accordance with Article 8 of the protocol,” according to Revaz Yusupov, deputy general director for the Center for Research in Perspective Technologies (CRPT) in Moscow. “Special attention during the presentations was given to the impact of the system on reducing the illicit tobacco trade in Russia. Representatives from Nigeria, Brazil and Panama were present at the event, facilitating discussions on the potential implementation of the system in their respective countries.”

    Introduced by the CRPT in 2019, the Chestny ZNAK system tracks items from production to real-time sales. According to Yusupov, the system is the first of its kind globally. “The fundamental approach involves assigning a unique digital data matrix code to each product,” explained Yusupov. “This code undergoes scanning at every stage, spanning from production to sale. The entire product journey is traced through electronic document management and online cash registers, mandated by law across the country.”

    Products with the assigned digital codes are deemed legal, complying with all requisites and documentation. Attempting to illegally introduce goods into the Russian market without proper documentation and labeling is “impractical,” according to the CRPT, because of the success of the Chestny ZNAK system—the digital codes are safeguarded by cryptographic protection, which makes forgery impossible.

    The information about the products within the system is tamper-proof as well, according to the CRPT, and the system blocks the sale of expired goods or goods lacking proper documentation. Currently, 667,000 companies and individual entrepreneurs use the system, which boasts a processing capacity exceeding 350,000 operations per second (“surpassing that of Uber or Netflix,” said Yusupov) and a data volume of nearly 100 petabytes.

    The Chestny ZNAK system isn’t specifically for tobacco products, though it has been successful in curbing the illicit tobacco market. The system can be used across goods, and it has been implemented in 16 categories of goods, including dairy products, water, clothing, footwear, perfumes, tobacco, medicines, beer and low-alcohol beverages, biologically active additives, antiseptics, medical products, soft drinks and juices, wheelchairs and children’s water, according to the CRPT. When asked about how the system works across goods, Yusupov stated that “The implementation process kicks off with pilot tests for each product category. While participation is not mandatory, it is in the business’ interest as it provides an opportunity to prepare equipment and practice with free Data Matrix codes. Workgroups are formed, comprising representatives from both the business sector and the system operator. Collaboratively, they develop a labeling concept that aligns with the unique requirements of each area within the circulation of goods.”

    And the system has been quite successful, according to its manufacturer. “Before the introduction of labeling,” said Yusupov, “the illegal tobacco market in Russia consistently grew, surpassing 15.6 percent by 2019. Following the implementation of labeling, it decreased by a quarter, with 18 productions legalized and 45 illegal ones shut down. Authorities claim that the combined impact of cracking down on illegal trade resulted in RUB245 billion ($2.7 billion) in increased tax revenues.”

    By the end of 2025, it’s estimated that the overall economic impact will reach RUB1.6 trillion ($17.6 billion).

    In addition to the Chestny ZNAK system, Russia has also enacted a law to systematize control over the circulation of tobacco raw materials and equipment through the licensing institute along with the establishment of an authorized government body for supervision. This government body has instituted a system for registration of equipment. Requirements have also been introduced for tracking the volume of production and circulation of tobacco products and raw materials and for the seizure and destruction of illegal tobacco products and the associated manufacturing equipment, and customs and border authorities have been granted additional powers in regard to illicit trade. Administrative and criminal liability are enforced for a broad range of violations related to mandatory product labeling requirements, including smuggling, production, introduction into circulation and transportation of unmarked goods. There are also quantitative restrictions on the movement of individuals within the territory of the Russian Federation with unmarked tobacco and nicotine-containing products. All of these reforms in combination with the Chestny ZNAK system have led to Russia’s success in curbing illicit trade, according to the CRPT.

    Marissa Dean joined Tobacco Reporter in the summer of 2018 as a copy editor.Since that time, she has taken on additional responsibilities, including feature writing.Her skills span the publishing industry from layout and design to copy editing to content creation.
  • PTC Disputes Tax Underpayment Charge

    PTC Disputes Tax Underpayment Charge

    Image: alexlmx

    Pakistan Tobacco Co. (PTC) is disputing allegations that legitimate tobacco companies are shortchanging the country’s tax collector, reports the Associated Press of Pakistan.

    Earlier this year, an Islamabad-based think tank presented figures showing that Pakistan’s national exchequer collected PKR567 billion ($20.4 billion) less from the tobacco industry than it was entitled to.

    “It is important to note that this figure is incorrect, misleading and detached from ground realities,” PTC wrote in a press release. “The only loss incurred to the government of Pakistan by the tobacco industry is because of tax evasion of illicit manufacturers as the legitimate industry pays all applicable duties and taxes.”

    Contrary to the report’s suggestion, the legitimate tobacco industry has significantly contributed to the national exchequer, paying PKR148 billion in fiscal year 2021-2022 and PKR173 billion in 2022-2023, according to PTC.

    The company highlighted that the government recently recognized PTC as one of Pakistan’s top tax-paying entities. It emphasized importance of a level playing field for the legitimate sector, which is currently undermined by the illicit sector.

  • Ireland: Illegal Factory Shut Down

    Ireland: Illegal Factory Shut Down

    Photo: Stephen

    Irish Revenue and Customs officers, in cooperation with the national police service, shut down an illegal tobacco factory in north Dublin, seizing over €630,000 ($683,550.55) worth of cigarettes, reports the BBC.

    Customs officers confiscated 758,000 illicit Marlboro cigarettes and over 1.4 metric tons of raw tobacco.

    If sold legally, the seized products would have generated €500,000 in tax revenue for the Irish government.

    The equipment in the facility is believed capable of producing over 250,000 cigarettes an hour along with pre-processing and packaging facilities.

  • Duty Free Welcomes Illicit Trade Investigation

    Duty Free Welcomes Illicit Trade Investigation

    https://www.dreamstime.com/

    The Duty Free World Council (DFWC) has welcomed the decision of Parties to the Illicit Trade Protocol to proceed with evidence-based research to “ascertain the extent of illicit trade in tobacco products related to duty free sales” as mandated by Article 13.2 of the Protocol.

    Article 13.2 of the Protocol requires the research to be conducted no later than five years after the Protocol entered into force. Parties to the Protocol agreed to commission the research at the Third Meeting of the Parties (MOP3), which took place in Panama City, Feb. 12-15, 2024, having been delayed from its initial date of late November 2023.

    The overarching focus of the Illicit Trade Protocol is to target material sources of illicit trade of tobacco products in the global economy.

    “We have always been clear that we reject unfair and unsubstantiated allegations that our industry is a major contributor to illicit trade,” said DFWC President Sarah Branquinho.

    “Our supply chain is one of the most secure and transparent in the world, and we have worked closely with customs and enforcement agencies across the world for decades to ensure criminal activities such as illicit trade have no place in it.

    We therefore welcome the decision of the Protocol Parties to proceed with the planned evidence-based research, and we look forward to the opportunity to clearly demonstrate that our industry is a partner in the fight against illicit trade, not a contributor to it.”

  • Anti-Illicit Trade Convention Concludes

    Anti-Illicit Trade Convention Concludes

    Photo: Ivan Semenovych

    The Third session of the Meeting of the Parties (MOP3) to the Protocol to Eliminate Illicit Trade in Tobacco Products concluded Feb. 15 with new commitments to combat the black market.

    “Our meeting this week took important decisions on tobacco tracking-and-tracing systems and approved a road map to conduct evidence-based research on illicit trade,” said Adriana Blanco Marquizo, who as head of the Secretariat of WHO Framework Convention on Tobacco Control also oversees the Protocol.

    “We also agreed on improvements for the reporting system our Parties use, which will strengthen the quality of data on implementation of the Protocol that can help guide future tobacco control efforts,” she said in a statement.

    The MOP is the governing body of the Protocol, which is an international treaty that entered into force in 2018 and aims to eliminate illicit trade in tobacco products through a package of measures to be taken by countries acting in cooperation with one another.

    “It is a global solution to a global problem,” said Blanco Marquizo.

    Illicit trade accounts for about 11 percent of total global tobacco trade, and its elimination could increase global tax revenues by an estimated $47.4 billion annually.

    Representatives from 56 Parties to the Protocol and 27 non-Party States gathered in Panama City, Feb.12-14 to tackle a range of issues from progress on implementation of the treaty to sustainable financing for tobacco control.

    MOP3 also adopted the Panama Declaration that calls on national governments to be alert for what it described industry campaign to undermine efforts to eliminate illicit trade in tobacco products.

    The Panama Declaration also emphasized the need for effective action to prevent and combat illicit trade in tobacco products, which requires a comprehensive international approach to—and close cooperation on—all aspects of illicit trade in tobacco, tobacco products and tobacco manufacturing equipment.

    Contradicting the observations of some tobacco grower representatives and consumer activists, the WHO said MOP3 was open to the media.

  • EU Tracking System Under Fire in Panama

    EU Tracking System Under Fire in Panama

    Photo: Tobacco Reporter archive

    During the meeting in Panama of the parties to the Protocol to Eliminate Illicit Trade in Tobacco Products (MOP3), European Member of Parliament Anne-Sophie Pelletier today expressed her concerns about the shortcomings of the European tobacco product tracing system.

    According to Pelletier, the Dentsu tracking system fails to comply with World Health Organization protocol—which the EU ratified in 2016—in part due to its association with the tobacco business.

    Dentsu’s system is split between IT firms that operate information-tracking databases on those codes for individual manufacturers and importers, and an overarching level that gathers all that data into a “secondary data repository.” At the end of 2018, Dentsu Tracking, a subsidiary of Japan’s Dentsu Group, was awarded a contract to operate this secondary repository.

    During a debate in Brussels on Feb. 8, European lawmakers highlighted the inefficiency of the European tobacco product tracing system, with several member states lamenting an increase in the level of tobacco parallel trade since its implementation in 2019.

    Furthermore, European parliamentarians questioned the choice of Dentsu Tracking as the provider, and that company’s recruitment of Jan Hoffmann, a former official of the EU’s Directorate-General for Health and Food Safety (DG Sante), as director of its regulatory affairs and compliance division.

    Dentsu has denied that Hoffman had any part in either awarding the contract to the company during his stint at DG Sante, or that he is using his Commission contacts to help the company in any way. “His hiring at Dentsu was carried out in full compliance with all applicable laws and regulations,” Dentsu Tracking’s CEO Philippe Castella was quoted as saying by Politico in 2023.

  • Panama Anti-Illicit Trade Meeting Kicks Off

    Panama Anti-Illicit Trade Meeting Kicks Off

    Photo: Europol

    The Meeting of the Parties to the Protocol to Eliminate Illicit Trade in Tobacco Products kicks off today in Panama City.

    The gathering brings together 68 parties that have been working together to halt illegal trade in tobacco products. The meeting, which will run until Feb. 15, is the third such gathering of the Parties to the Protocol and the first since 2021.

    According to the World Health Organization, illicit trade accounts for about 11 percent of total global tobacco trade, and its elimination could increase global tax revenues by an estimated $47.4 billion annually.

    Adriana Blanco Marquizo, head of the Secretariat of the World Health Organization Framework Convention on Tobacco Control said that, despite its claims to the contrary, the tobacco industry profits from the illicit trade. “Implementing the protocol generates substantial funds for parties as it safeguards important tax revenues that can be utilized by governments to finance sustainable development,” she said in a statement.

    The Meeting of the Parties will review the efforts underway to implement a tracking and tracing system.

    A key component of the global tracking and tracing regime is the global information-sharing focal point, and the first phase of that initiative will begin to become available to parties once the meeting concludes. 

    Following an initial pilot phase, the new system will be open to all parties to the protocol, helping them to further secure the tobacco supply chain and assist in investigations. 

    The Meeting of the Parties will also consider ways to improve implementation of the protocol, determine the road ahead and highlight the need for additional evidence-based research. Reporting and information-sharing mechanisms will also be considered, as the sharing of experiences and best practices among parties is key to advancing the fight against illicit trade.

    In addition to the parties that are signatories to the protocol, which is an international treaty, the meeting will host observers, including countries that are not yet parties to the treaty.