Rules to prevent sales to children are undermined by illicit sales away from the eyes of the authorities
It is estimated that some 330-660 billion cigarettes a year are illicit - smuggled, counterfeit or tax-evaded in other ways. This is about 6 to 12 per cent of world consumption.
The shadowy nature of this trade makes the scale of it hard to estimate, but we have developed research methods to help our companies and governments to understand it better. These include market surveys, consumer research and analysing packs collected from consumers to estimate the difference between duty paid shipments and actual consumption.
A global problem
Our research currently indicates a global problem of some 330 billion illicit cigarettes a year. Though this may well underestimate the scale. Other bodies concerned about illicit trade, such as the Framework Convention Alliance, put the global figures at twice as much, estimates that could indeed be correct.
Even at the lower figures, illicit trade blows big holes in governments’ budgets. The losses in unpaid tobacco taxes are around US$40 billion worldwide, money that many governments can ill-afford to lose. Losses will be higher still, as smugglers don’t declare their earnings for income tax either.
Legitimate retailers, often small or family businesses, are also damaged as smugglers and criminals steal their trade, while rules for retailers to prevent sales to children are undermined by illicit sales away from the eyes of the authorities.
Some governments are unaware of how bad the problem is and do not acknowledge its link to tax levels.
Research into illicit trade
In March 2011, Deloitte published a report into the 'Illicit trade of tobacco in Australia' . The report, which was jointly commissioned by the tobacco industry in Australia, estimated that in 2010 illicit trade cost the government around $1.1 billion in lost excise revenue. Since 2007, the tobacco black market had grown from 6.4 per cent to 15.9 per cent of the tobacco sold in the country. The largest annual increase during that period occurred in 2010, the same year as an increase in excise of 25 per cent.
We hope the research by our companies will help to show governments the benefits of tackling illicit trade and having balanced tax policies that can achieve reliable tax revenues from tobacco without giving the traffickers an open door.
Legitimate tobacco companies are also losing revenue to the criminals - from US$5-10 billion a year. On top of lost revenue, investment in brands, jobs and distribution networks is also undermined.
The battle against contraband was highlighted in an investigation by the UK's Sunday Telegraph newspaper in August 2009. It reported that a small town on the Polish-Ukraine border was a fast-growing centre for illegal cigarettes, leeching money from taxpayers, industry and government.