Illicit Cigarette Market Research Articles

Response of legal and illegal cigarette prices to a tax increase in Ethiopia

BackgroundIn 2020, Ethiopia passed a landmark tax proclamation implementing an evidence-based mixed excise system aimed at curbing tobacco use. This study evaluates the impact of the tax increase of more...

Extent of illicit cigarette sales in Nepal: findings from a retail survey

IntroductionIncreasing the tax on cigarettes is widely considered the most effective method to reduce its consumption. However, Nepal has a low cigarette tax as policymakers in Nepal are concerned about...

Effects of the illicit market on the price elasticity of cigarette consumption in Brazil

BackgroundAn important element to consider in tobacco tax policy is the illicit market of cigarette sales. The objective of this paper is to provide estimates of both conditional and unconditional...

Tax revenue lost due to illicit cigarettes in South Africa: 2002−2022

ObjectiveTo estimate lost excise and value-added tax (VAT) revenue as a result of illicit cigarette trade from 2002 to 2022.DesignUsing gap analysis, we estimated the number of illicit cigarettes by...

Illicit cigarette market in Georgia: potential impacts on smoking prevalence and tax revenues

ObjectivesThis study aims to examine the impact of taxation measures implemented between 2017 and 2019 on the illicit cigarette market in Georgia and to assess the potential effects of its full elimination on smoking rates and tax revenues. Study designThis was a cross-sectional and observational study. MethodsThe study uses the gap analysis method to estimate the size of the illicit market by comparing self-reported cigarette consumption with tax-paid cigarette sales. Potential changes in cigarette consumption are calculated using estimates of price demand elasticity and the price difference between licit and illicit cigarettes. The applicable excise tax is then applied to the estimated change in licit cigarette consumption to determine the potential change in tax revenues. ResultsIn 2020, illicit cigarettes accounted for 6.4% of the market, which decreased to 0.6% in 2021. Eliminating the illicit cigarette market could potentially reduce the number of smokers by 0.5% in 2020 and 0.1% in 2021. It could also lead to a 2.8% increase in excise tax revenues in 2020 and a 0.2% increase in 2021. The study highlights a notable shift in consumer behavior since 2019 toward smoking roll-your-own (RYO) cigarettes. ConclusionsTax increases did not have a significant impact on the size of the illicit market in Georgia. The shift in consumer preference toward RYO cigarettes may explain why the illicit cigarette market did not expand after the tax hikes. However, this shift diminishes the effectiveness of taxation policies in reducing smoking rates and leads to a decline in excise tax collection.

Quitting behavior during the tobacco sales ban in South Africa: Results from a broadly nationally representative survey.

In response to COVID-19, the South African government banned the sale of tobacco products for 20 weeks. Before the ban, the illicit cigarette market was well-entrenched and smoking cessation services were not widely available. Several surveys conducted to ascertain cigarette smokers' responses to the ban reported substantial differences in the proportion of smokers who quit. This study provides a broadly nationally representative ex-post investigation into cigarette smokers' quitting behavior related to the sales ban. We used data from wave three of NIDS-CRAM (the National Income Dynamics Study-Coronavirus Rapid Mobile Survey) conducted in November-December 2020. We first investigated the proportion of people who quit and who continued smoking during and after the sales ban. We subsequently linked the NIDS-CRAM survey to the fifth wave of NIDS (2017) to identify a subset of established smokers, and considered whether their quitting behavior differed from that of all smokers who smoked at the start of the sales ban. The cross-sectional analysis showed that 7.8% of cigarette smokers quit during the sales ban, but that 55% of these quitters relapsed after it was lifted. Of the pre-ban smokers, 3.5% indicated that they did not smoke both during and after the sales ban, and 3.7% quit after the ban was lifted. The longitudinal analysis showed that 7% of people who were smoking in 2017, quit smoking cigarettes during the tobacco sales ban, but that >70% of quitters relapsed after it was lifted. Only 2% of pre-ban established smokers indicated that they did not smoke during or after the ban. The sales ban did not have the intended objective of encouraging large-scale smoking cessation. This reflects policy failures to provide smokers with appropriate cessation support and to effectively control the illicit market both prior to and during the sales ban.

Extent of illicit cigarette market from single stick sales in Ghana: findings from a cross-sectional survey

ObjectiveThis study aims to measure the extent of illicit cigarette consumption from single stick sales, to determine the nature and types of illicit cigarettes present in Ghana, and to identify...

Estimating the Size of Illicit Tobacco Market in Lithuania: Results from the Discarded Pack Collection Method.

For decades in Lithuania, the threat of illicit trade has been used to weaken evidence-based tobacco-control policies and to undermine efforts to reduce smoking prevalence and its attributable burden, while also depriving the government of much-needed tax revenue. The aim of this study is to estimate the size of the illicit cigarette market in Lithuania using data from a nationally representative discarded pack collection. The study employed a two-stage cluster design by first randomly selecting 65 well-defined population settlements (30 cities and 35 townships), representing both urban and rural areas, in all 10 counties in Lithuania. Next, we randomly selected 358 polling districts within these settlements. Each polling district had one route along which discarded packs were collected between September 2019 and 2020. In total, 28.9% (95% CIs = 27.7 to 30.1) of discarded cigarette packs were classified as illicit. The vast majority (90.1%) of illicit packs originated from Belarus with most (86.9%) packs produced in the Grodno Tobacco Factory Neman. Tax stamps were present on 93.6% of legal packs and also on 76% of illegal packs. Data from this study suggest that the illicit cigarette trade in Lithuania is more widespread than indicated by other methods and primarily supplied by the neighboring Belarus state-owned tobacco factory in Grodno. This signals the need to adopt Belarus-specific border control and security measures. This study presents data from the first national industry-independent study on illicit tobacco trade in Lithuania using discarded cigarette pack collection method. As customs seizure data show, our results also indicate that the illicit cigarette market is primarily supplied by Belarus state-owned Grodno Tobacco Factory Neman known for filling Europe with cheap cigarettes. An estimate derived from this study is higher than both the industry-independent estimate obtained by the survey method and the estimates offered by the tobacco industry. This adds to the evidence that the difference in estimates obtained by different methods reflects the strengths and weaknesses of each. The study also demonstrates the impact of a rogue neighbor on the illicit market in an adjacent country and offers suggestions on how to address it.

Magnitude of illicit cigarette trade in Malaysia: empirical evidence compared with industry studies

BackgroundThe tobacco industry contends that the illicit market in Malaysia occupies 62.3% of the total cigarette market. If this is true, Malaysia has one of the largest shares of illicit...

Is Illicit Cigarette Market a Threat to Tobacco Control in Ethiopia?

The presence of an illicit cigarette trade is used as an argument in Ethiopia to halt pro-health tobacco tax policies. The National Tobacco Enterprise (NTE) recently reported that the illicit cigarette market accounts for over 61% of the total market, and over 90% in the Eastern part of Ethiopia. The aim of the study is to estimate the magnitude of the illicit cigarette trade in Ethiopia. We employed a cross-sectional observational study of empty packs collected in Ethiopia from retailers and from the streets in 10 towns, representing 10 regional states, and two autonomous cities. The majority (80.1%) of the 6438 empty cigarette packs collected (5368 from the streets and 1070 from retailers) belonged to locally produced brands, while the remaining 19.9% were foreign packs, including those allowed to trade in Ethiopia. Overall, 18.9% of the collected empty packs were classified as illicit. However, the share of illicit cigarette packs varied considerably across the country with as many as 97.7% of the packs collected near the Eastern border being illicit. Since the smoking prevalence is significantly higher in that part of Ethiopia, the weighted estimate of illicit cigarette market reached 45.4%. To address this alarming situation, Ethiopia should adopt technologies such as a track and trace system to control its cigarette supply chain, because cigarette packs currently bear no indication that the proper tax was paid. In addition, law enforcement and border security need to be strengthened, especially in the East. This is the first study to estimate the magnitude of the illicit cigarette trade in Ethiopia. It shows that the illicit cigarette trade is low in most parts of the country, but points to some problematic areas near the border with Somalia where illicit cigarette prevalence and overall smoking prevalence are high. We propose a solution to control illicit cigarette trade in Ethiopia that the whole region would benefit from.

Effects of the Brazilian tax reform plans on the tobacco market

BackgroundThere has been an intense debate in the Brazilian National Congress on how to reform the country’s tax system on consumption. This paper investigates the effects of the tax reform...

Analysing the trend of illicit tobacco in the Philippines from 1998 to 2018

Tobacco taxation is the most effective measure to reduce cigarette consumption and consequently improve public health outcomes. It is also an important source of government revenue. The presence of an...

Potential impact of eliminating illicit trade in cigarettes: a demand-side perspective

BackgroundThe Protocol to Eliminate Illicit Trade in Tobacco Products (the Protocol) entered into force in September 2018, and commits Parties to implement a package of measures to combat this global...

Discrepancies in the Brazilian tobacco production chain: raw inputs, international trade and legal cigarette production.

The significant market share of illicit cigarettes in Brazil is well established in the literature, nonetheless lacking clarity in terms of its actual size. Paraguay has a paramount role in this discussion, acting both as a supplier of illegal tobacco products to Brazil and as buyer of inputs from Brazil. A proper analysis of the illicit cigarette market in Brazil necessarily involves a deeper discussion of the Paraguayan production chain and its interaction with the Brazilian market. International data were used to establish the bilateral legal trade pattern of tobacco-related products between Paraguay and Brazil, including inputs and final outputs. Inspired by the technical requirements methodology, available unmanufactured tobacco within Brazil was obtained by adding-up domestic production with net imports. Its historical behaviour was compared with legal cigarette production patterns within Brazil. Supposing rational agents, these two links of the Brazilian cigarette production chain should behave similarly: for lower final usage, less domestically available supply. Any discrepancies would suggest something abnormal in the production chain. Brazil is a relevant legal supplier of intermediate goods for the Paraguayan tobacco complex and has an irrelevant position as legal buyer of Paraguayan tobacco-related goods (either inputs or final goods). Paraguayan net imports of production inputs seem to be abnormally high for their legal needs. In Brazil, a clear discrepancy between domestically available unmanufactured tobacco (input) and tax-based cigarette production (output) emerged throughout the years and, even more striking, has been growing over the years. Excessive cigarette production inputs in Paraguay suggest a potential oversupply of cigarettes in that country-likely diverted to illicit trade. Likewise, discrepancies in the Brazilian tobacco production chain are also evidence of illicit tobacco trading in Brazil-not necessarily of final products. A deeper analysis of the Brazil/Paraguay tobacco supply chain would be welcomed given the likely operation of these two countries as a single 'production/consumption hub' of both legal and illegal products (either inputs or final tobacco products). Public policies should foster controls not only on cigarettes but also on raw inputs for their production.

Explaining the Consumption of Illicit Cigarettes

What drives the consumption of illicit cigarettes? While criminology has rarely addressed the divers of the illicit cigarette markets from a theoretical and empirical perspective, studies from other disciplines point to two classes of causes. Some studies stress the impact of cigarette prices and taxes on the market for illicit cigarette; others emphasize the importance of different non-price factors, including informal economy and corruption. This study tests the influence of both price and non-price factors on the illicit cigarette market. Multilevel growth curve analysis—three-level MLM for longitudinal measures—of the illicit cigarette market at the subnational level in the European Union. The analysis focuses on 247 regions in the EU between 2007 and 2013. This study shows that both price and non-price factors influence illicit cigarette consumption. Lower affordability of legal products, proximity to sources of cheap cigarettes, higher national income inequality, greater population density, and the levels of illicit cigarettes in neighboring regions are associated with higher illicit consumption. On the contrary, there is no empirical evidence of the role of two ‘usual suspects’: corruption and shadow economy. The paper also shows that the market for illegal cigarettes is shaped by both demand and supply factors. The geographic concentration of illicit consumption and smuggling calls for the creation of anti-illicit-trade units in most densely populated areas or custom task forces at the most sensitive borders. The disproportionate relevance of illicit flows from eastern non-EU countries suggests to increase the political pressure on these source countries. Finally, given the importance of the demand side in determining the size of the illicit market, price increases should be matched with consumer awareness campaigns. These campaigns should focus on the societal consequences of purchasing illicit cigarettes together with illustrating the harm of consuming tobacco products.

The Extent of the Illicit Cigarette Market in Australia: Using Publicly Available Data in a ‘Top-Down’ Approach to Estimation

There have been several recent attempts to estimate the size of the Australian illicit tobacco market. The two most recent studies have provided significantly different results, with the Australian Taxation Office (ATO) arriving at an estimate of 5 per cent as the extent of the illicit component of the market, while a tobacco industry–funded approximation conducted by KPMG has suggested this figure to be 14.1 per cent. This paper investigates whether a new methodology for undertaking such an estimate could produce more accurate results and examines publicly available information to explore if there are datasets that could help determine which estimate of the illicit market may be more accurate. The resulting ‘top-down’ approach identifies an estimate lying between the ATO and KPMG estimates, although it is limited to the illicit cigarette market in Australia. Implications of the results are discussed, and suggestions for further research are presented.

The illicit cigarette market in six South African townships

BackgroundWe estimate the size of the illicit cigarette market in low socioeconomic areas in South Africa before and after a tax increase. In 2018, the real excise tax increased by...

Measuring the illicit cigarette market in Mexico: a cross validation of two methodologies

ObjectiveTo compare two methods to estimate the magnitude of the illicit cigarette trade in Mexico and to contrast these results with tobacco industry figures.MethodsWe used two survey methods: a smoker...

A methodology for estimating the illicit consumption of cigarettes at the country level

ABSTRACTThis paper introduces and discusses a methodology for estimating the scale of illicit consumption of cigarettes at a national level. After reviewing current data gathering approaches and estimates, the paper delineates a methodology to estimate the consumption of each type of illicit cigarette (i.e., counterfeits, illicit whites, smuggled/trafficked genuine cigarettes). The proposed methodology is tested through estimating the size and characteristics of the illicit cigarette market in 27 Member States of the European Union in 2016. The results, which underline the heterogeneity in the quality and in the quantity of the illicit consumption of cigarettes in Europe, are presented along with considerations about the strengths and limitations of the proposed methodology in relation to extant approaches.

Illicit cigarette trade in South Africa: 2002–2017

BackgroundIncreasing cigarette excise taxes is widely recognised as the most effective measure to reduce the demand for cigarettes. The presence of illicit trade undermines the effectiveness of tax increases as...