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Lost revenue estimates from the illicit trade of cigarettes: A 12-country analysis

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The illicit trade of tobacco products, including domestic tax evasion and avoidance and cross-border smuggling, poses a complex and pressing challenge for the health of the global population. This complexity lies in part with the many avenues for the illegal movement of tobacco across borders.1 The complexity of this challenge is heightened by porous borders in a globalised world.2 3 Unconventional means of tobacco sales, such as the internet, have challenged governments to enhance mechanisms for the monitoring and control of the cross-border movement of these products.4 5 Illicit trade not only undermines health protective measures such as taxation,6 which are proven to reduce tobacco consumption and dissuade individuals from becoming consumers, but also undermines the revenue gained by governments from tobacco taxation. The Protocol on the Illicit Trade of Tobacco Products is the first to be negotiated within the Framework Convention on Tobacco Control.7 There are two points worth noting about this Protocol. First, the cost of developing a system for tracking and tracing tobacco products is substantially borne by the tobacco industry itself.8 Second, a point which is the focus of our study is that the national health and economic gains of supporting and implementing a strong protocol for the control of illicit trade are great. …
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LETTERS
Tobacco control and the
epidemiological framework
We recently categorised the body of tobacco
research
1
according to the epidemiological
framework of agent, host, environment and
vector.
2e4
We found that tobacco research to
date has focused predominantly on tobacco
products themselves and the people who use
them.
The purpose of this research letter is to
delve deeper and examine whether the types
of articles published in the two leading
tobacco-focused journalsdTobacco Control
and Nicotine & Tobacco Researchddiffer from
each other and from those published in other
journals.
Tobacco articles were randomly selected
from searches of the Medline and Web of
Science databases from 2000 to 2008.
Applying our inclusion criteria, the number
of articles eligible for coding was 2050.
Articles were coded based on their title and,
if necessary, their abstract. Each article was
coded according to the epidemiological
framework component: agentdfor example,
the cigarette, cigarettes as a cause of disease;
hostdfor example, smoking behaviours,
characteristics of smokers, treatment for
smoking; environmentdfor example, regu-
lations, community interventions; and
vectordfor example, the tobacco industry.
Frequencies and cross-tabulations were
performed using SAS. Standard two-tailed,
two sample tests of proportions were
conducted to determine differences in
proportions. Further details on the method-
ology and inter-rater reliability are available
elsewhere.
1
We found a number of differences when
we compared the distribution of articles
across the epidemiological framework
concepts for all journals in the 2000s to the
distributions for Tobacco Control and Nicotine
& Tobacco Research (table 1). Both tobacco
journals published a signicantly lower
proportion of articles pertaining to the agent
than all journals combined (p<0.01), and
Tobacco Control published relatively fewer
agent articles than Nicotine & Tobacco
Research (p<0.01). Whereas Tobacco Control
published the same proportion of host
papers as all journals combined (p¼0.01),
and Nicotine & Tobacco Research published
a signicantly higher proportion of host
papers (p¼0.01), Nicotine & Tobacco Research
published the same proportion of environ-
ment papers as all journal combined
(p¼0.70), with Tobacco Control publishing
a signicantly higher proportion of papers
focusing on the environment (p<0.01).
Tobacco Control published a signicantly
higher proportion of papers focusing on the
vector compared to both Nicotine & Tobacco
Research and all journals combined (p<0.01).
Tobacco Control has lled a niche,
publishing a greater proportion of papers,
compared to other journals, focused on the
contextual factors that inuence smoking
behaviours and on the vector of the tobacco
pandemic (the tobacco industry). This focus
on very applied research might help explain
Tobacco Controls relatively high impact factor
for a single issue journal (3.852 in 2010 and
4.438 in 2009). That said, our ndings
suggest that both leading tobacco-focused
journals, as well as all other journals, could
increase the proportion of papers they
publish that describe and explore ways of
reducing the effectiveness of the tobacco
industry in maintaining and expanding
tobacco use globally.
Acknowledgements We thank Ms Diane van Abbe,
Information Specialist at the Ontario Tobacco Research
Unit, who conducted the literature searches. This work
was supported by the Ontario Tobacco Research Unit,
which receives funding from the Ontario Ministry of
Health Promotion.
Joanna E Cohen,
1,2,3
Michael O Chaiton,
1,2
Lynn C Planinac
1
1
Ontario Tobacco Research Unit, Toronto, Ontario,
Canada;
2
Dalla Lana School of Public Health, University
of Toronto, Toronto, Ontario, Canada;
3
Centre for
Addiction and Mental Health, Toronto, Ontario, Canada
Correspondence to Dr Joanna E Cohen, University of
Toronto, 33 Russell Street, Toronto, Ontario, Canada
M5S 2S1; joanna_cohen@camh.net
Funding This work was supported by the Ontario
Tobacco Research Unit, which receives funding from the
Ontario Ministry of Health Promotion.
Competing interests None.
Contributors JEC conceived of the study and drafted
the letter. All authors contributed to the study design
and participated in data coding. MC conducted the data
analysis. All authors provided constructive feedback on
the draft manuscript, and all authors approved the final
version of the paper.
Provenance and peer review Not commissioned;
externally peer reviewed.
Accepted 20 September 2010
Published Online First 21 October 2010
Tobacco Control 2011;20:318.
doi:10.1136/tc.2010.039412
REFERENCES
1. Cohen JE, Chaiton MO, Planinac LC. Taking stock:
a bibliometric analysis of the focus of tobacco research
from the 1980s to the 2000s. Am J Prev Med
2010;39:352e6.
2. Orleans CT, Slade J. Nicotine Addiction: Principles and
Management. NewYork: Oxford University Press,1993. ix.
3. Giovino G. Epidemiology of tobacco use in the United
States. Oncogene 2002;21:7326e40.
4. Slade J. A disease model of cigarette use. N Y State J
Med 1985;85:294e7.
Lost revenue estimates from the
illicit trade of cigarettes:
a 12-country analysis
The illicit trade of tobacco products,
including domestic tax evasion and avoid-
ance and cross-border smuggling, poses
a complex and pressing challenge for the
health of the global population. This
complexity lies in part with the many
avenues for the illegal movement of tobacco
across borders.
1
The complexity of this
challenge is heightened by porous borders in
a globalised world.
23
Unconventional means
of tobacco sales, such as the internet, have
challenged governments to enhance mecha-
nisms for the monitoring and control of the
cross-border movement of these products.
45
Illicit trade not only undermines health
protective measures such as taxation,
6
which
are proven to reduce tobacco consumption
and dissuade individuals from becoming
consumers, but also undermines the revenue
gained by governments from tobacco taxation.
The Protocol on the Illicit Trade of Tobacco
Products is the rst to be negotiated within
the Framework Convention on Tobacco
Control.
7
There are two points worth noting
about this Protocol. First, the cost of devel-
oping a system for tracking and tracing
tobacco products is substantially borne by
the tobacco industry itself.
8
Second, a point
which is the focus of our study is that the
national health and economic gains of
supporting and implementing a strong
protocol for the control of illicit trade are great.
The greatest benet of such a protocol is
the ability of governments to leverage
tobacco taxation as a health protection
strategy, whereby the number of new
smokers will decrease along with a corre-
sponding increase in tobacco cessation.
Subsequently, the stronger the system of
regulation and enforcement for illicit trade,
the greater the ability of governments to
leverage taxation as a tobacco control
measure. The primary purpose of this study
is to inform countries of the short-term
economic consequences of the illicit trade of
Table 1 Tobacco articles according to epidemiological framework concept, by journal
Tobacco Control*
Nicotine & Tobacco
Research*
All other journals
(2000s only)
Agent 13% (n¼11) 36% (n¼25) 57% (n¼1074)
Host 32% (n¼27) 59% (n¼41) 33% (n¼630)
Environment 38% (n¼32) 6% (n¼4) 8% (n¼155)
Vector 18% (n¼15) 0% (n¼0) 2% (n¼36)
Total No 85 70 1895
*Percentages do not add up to 100% owing to rounding.
318 Tobacco Control July 2011 Vol 20 No 4
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tobacco products. We chose 12 diverse
countries to provide a broad picture of the
global challenge of illicit trade.
It is important to note that the number of
illicit trade data sources is limited and often
the methodology is unclear.
9
Our primary
source of data for the illicit trade estimates is
Euromonitor International. This data set has
recently been criticised for its lack of meth-
odological transparency, its overestimation of
the illicit trade of cigarettes and a tendency to
suggest that illicit trade is increasing from
year to year.
910
We are cognisant of these
limitations. It is well established that the net
impact of the tax increases is overwhelmingly
positive.
9
The paucity of illicit trade esti-
mates should not hinder a global dialogue on
this important issue. However, within this
dialogue we must remain conscious of the
data limitations.
We conducted an analysis of existing data
in order to calculate the estimated loss of
revenue per country per year.
11
We
conducted a simple calculation to, rst,
determine the price of one individual ciga-
rette in each country in order to then
calculate the tax revenue per cigarette per
country. Cigarette price was calculated based
on the Tobacco Atlas data set.
12
We then
calculated the number of cigarettes traded
illicitly per year per country based on the
proportion of illicit trade per country, which
in turn is based on Euromonitor Interna-
tional data.
11
We calculated the excise tax
from the total tax as provided by the
Tobacco Atlas.
12
This calculation involved
subtracting the actual value-added tax
13
(eg,
12/112¼10.7% for Ecuador) from the total
tax. Once the excise tax revenue per cigarette
was calculated, we calculated the estimated
loss of revenue per year by multiplying the
number of illicitly traded cigarettes with the
tax revenue generated per cigarette. This
information provides an estimate of lost
revenue for each country. We also calculated
the estimated revenue lost for the cheapest
and most sold brand in each country based
on cost estimates provided in the 2009 WHO
report. All estimates are calculated in US
dollars (see table 1).
The range of excise tax as a proportion of
the cigarette price as of 2007 or later was
35.8% in Vietnam to 80% in Bulgaria. The
average estimates for the illicit trade of
cigarettes between 2003 and 2008 ranged
from 4.4% in the Czech Republic to 27% in
the UK. Of the 12 countries analysed, 5
demonstrated an increase in illicit trade
between 2003 and 2008. Two of them
demonstrated a decrease in illicit trade and
the remainder demonstrated patterns of
uctuation between 2003 and 2008. The
average number of cigarettes traded illegally
ranged from 389.55 million in Ecuador to
over 20 billion in India. Lost excise tax
revenue as an average of the 6-year period for
the most sold brand ranged from over $23
million per year in Ecuador to almost $5
billion per year in the UK (see table 1).
Table 1 Lost revenue due to the illicit trade of cigarettes
Country
Price per cigarette*
Actual
value-added
tax
Total tax as a
proportion of
cigarette price,
2007, or latest
available data*
Excise
taxx
Excise tax revenue per cigarette
Illicit trade
estimate(%):
6-year average
(2003e2008)y
Change
over
6 years
No. (million) of
cigarettes traded
illicitly/yeary
Estimated loss of revenue (excise tax)
Government
investment
in tobacco
control
Cheapest
brand
Most sold
brand Marlboro
Cheapest
brand
Most
sold
brand Marlboro
Cheapest
brandz
Most
sold
brand Marlboro
Belgium 0.28 0.29 0.29 17.4 77.43 60.0 0.17 0.17 0.17 6.0 Y780.60 132 702 000 132 702 000 132 702 000 4 394 478
Bulgaria 0.07 0.10 0.13 16.7 86.98 80.0 0.06 0.08 0.10 8.9 [2020.35 121 221 000 161 628 000 202 035 000 12 400
Czech Republic 0.14 0.15 0.17 16.7 79.48 62.8 0.11 0.12 0.14 4.4 [1075.83 118 341 300 129 099 600 150 616 200 NA
Ecuador 0.05 0.11 0.085 10.7 64.29 53.6 0.03 0.06 0.05 9.3 [389.55 11 685 000 23 373 000 19 477 500 200 000
Estonia 0.12 0.14 0.11 16.7 77.50 60.8 0.07 0.09 0.07 22.6 4635.98 44 518 600 57 238 200 44 518 600 55 575
Hungary 0.12 0.15 0.15 20 74.05 54.0 0.06 0.08 0.08 18.6 Y3737.83 224 269 800 299 026 400 299 026 400 244 026
India 0.07 0.08 0.10 11.9 55.09 43.2 0.03 0.03 0.04 17.3 [20 202.33 606 069 900 606 069 900 808 093 200 3 869 548
Indonesia 0.07 0.06 0.045 9.1 52.64 43.5 0.03 0.02 0.02 7.8 412 800.62 384, 018 600 256 012 400 256 012 400 30 931
Malaysia 0.08 0.13 0.18 0 48.32 48.3 0.04 0.06 0.09 17.0 43644.93 145 797 200 218 695 800 328 043 700 NA
Philippines 0.03 0.03 0.03 10.7 54.23 43.5 0.01 0.01 0.01 19.1 [18 057.78 180 577 800 180 577 800 180 577 800 91 633
Romania 0.07 0.11 0.10 19.4 73.68 54.3 0.04 0.06 0.05 10.3 43933.50 157 340 000 236 010 000 196 675 000 28 306 338
UK 0.31 0.38 0.54 14.9 79.82 64.9 0.20 0.25 0.35 27.0 419 101.17 3 820 234 000 4 775 292 500 6 685 409 500 137 317 368
Vietnam 0.01 0.03 0.05 9.1 44.90 35.8 0.004 0.01 0.02 12.3 411 519.30 46 077 200 115 193 000 230 386 000 30 000 000
*Based on Tobacco Atlas data.
12
yBased on Euromonitor International data.
11
zBased on the WHO report.
17
xCalculated using the international value-added tax rates for each country for 2010.
13
Tobacco Control July 2011 Vol 20 No 4 319
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The price elasticity of demand is estimated
to be between 0.4 and 0.6.
14
As such the
estimated revenue lost may be lower than
our calculated estimates over time as
consumption decreases. In conducting this
analysis, we recognise that the actual
amount of additional tax revenues collected
as a result of successfully controlling illicit
trade is inuenced by both the share of illicit
trade (supply) and the size of the market
(demand) and would decrease over time.
However, the immediate economic gains
upon controlling illicit trade are substantial.
Illicit trade compromises health outcomes
to the extent that it undermines price strat-
egies, labelling requirements or other policies
aimed at reducing the demand for tobacco
products. Illicit trade also compromises all
government programs to the extent that it
deprives communities of revenues that could
be put to public purposes. For example, the
annual revenue loss to the illicit tobacco
market in the 12 countries that we analysed
is more than 3 times the entire budget of the
WHO
15
and almost 4,000 times as large as
the cost of convening a session of an Inter-
governmental Negotiating Body to develop
a multinational response.
16
For the countries
we studied, lost revenue due to the illicit
trade of cigarettes is higher than government
investments in tobacco control.
17
Despite the
data limitations, the lost revenue due to the
illicit trade of cigarettes is predictably high.
The cost of supporting the development and
implementation of protocols to curb the
illicit trade of tobacco products is relatively
small when compared with the health and
economic gains.
Raphael Lencucha,
1
Cynthia Callard
2
1
Faculty of Health Sciences, Bachelor of Public Health
Program, University of Lethbridge, Lethbridge, Alberta,
Canada;
2
Physicians for a Smoke-Free Canada, Ottawa,
Ontario, Canada
Correspondence to Raphael Lencucha, Assistant
Professor, Faculty of Health Sciences, Bachelor of Public
Health Program, University of Lethbridge, 4401
University Drive West, Lethbridge, T1K 3M4 Canada;
raphael.lencucha@uleth.ca
Competing interests None.
Provenance and peer review Not commissioned;
externally peer reviewed.
Accepted 25 January 2011
Published Online First 17 February 2011
Tobacco Control 2011;20:318e320.
doi:10.1136/tc.2010.039578
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320 Tobacco Control July 2011 Vol 20 No 4
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doi: 10.1136/tc.2010.039578
2011 2011 20: 318-320 originally published online February 17,Tob Control
Raphael Lencucha and Cynthia Callard
of cigarettes: a 12-country analysis
Lost revenue estimates from the illicit trade
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... Euromonitor International data (2020). 28 The methodology adopted by Euromonitor International to collect these data is not wholly transparent (Aziani et al., 2020) and, according to some authors (e.g., Blecher, 2010;Gilmore et al., 2014;Lencucha & Callard, 2011), not entirely reliable. Although it has been criticized by some public health experts, Euromonitor International's estimates on illicit cigarette consumption are still the best available time series (Prieger & Kulick, 2018). ...
... Euromonitor International data (2020). 28 The methodology adopted by Euromonitor International to collect these data is not wholly transparent (Aziani et al., 2020) and, according to some authors (e.g., Blecher, 2010;Gilmore et al., 2014;Lencucha & Callard, 2011), not entirely reliable. Although it has been criticized by some public health experts, Euromonitor International's estimates on illicit cigarette consumption are still the best available time series (Prieger & Kulick, 2018). ...
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About one in every two smokers dies from smoking-related causes every year. In response to this, over the past four decades, numerous countries have introduced successful tobacco control policies. Despite this, smoking persists, especially among more disadvantaged social groups. The relatively long history of smoking cessation policies allows for a better understanding of what works, what does not, why, and how. However, the social, cultural, and regulatory complexity of smoking prevents any straightforward replication of successful policies within a different context. Yet, sound scientific research allows for the construction and verification of hypotheses about how to replicate cessation elsewhere. Australia constitutes an ideal case-study through which to achieve this aim. This is because Australia is a leading country in tobacco control, despite people have easier access to nicotine through traditional tobacco products than they do via the use of Electronic Nicotine Delivery Systems, despite the latter being less harmful than the former. These features, combined with the abundance of empirical studies on the country, allow for a sound and comprehensive policy analysis.
... Tobacco control researchers around the world often triangulate several methods to improve the precision of their estimates of the magnitude of illicit trade [24]. The volume of scientific literature is skewed towards the high-and upper middle-income countries [1,[4][5][6][7]17,[25][26][27][28][29][30][31][32][33][34] relative to the low-and lower middle-income countries [11,24,[35][36][37][38]. This is perhaps due to the issue of data availability and research capacity. ...
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The illicit tobacco trade undermines the effectiveness of tobacco tax policies; increases the availability of cheap cigarettes, which, in turn, increases tobacco use and tobacco related deaths; and causes huge revenue losses to governments. There is limited evidence on the extent of illicit tobacco trade particularly cigarettes in Bangladesh. The paper presents the protocol for a mixed-methods study to estimate the extent of illicit cigarette trade in Bangladesh. The study will address three research questions: (a) What proportion of cigarettes sold as retail are illicit? (b) What are the common types of tax avoidance and tax evasion? (c) Can pack examination from the trash recycle market be considered as a new method to assess illicit trade in comparison to that from retailers and streets? Following an observational research method, data will be collected utilizing empty cigarette packs from three sources: (a) retailers; (b) streets; and (c) trash recycle market. In addition, a structured questionnaire will be used to collect information from retailers selling cigarettes. We will select post codes as Primary Sampling Unit (PSU) using a multi-stage random sampling technique. We will randomly select eight districts from eight divisions stratified by those with land border and non-land border; and within each district, we will randomly select ten postcodes, stratified by rural (five) and urban (five) PSU to ensure maximum geographical variation, leading to a total of eighty post codes from eight districts. The analysis will report the proportions of packs that do not comply with the study definition of illicit. Independent estimates of illicit tobacco are rare in low-and middle-income countries such as Bangladesh. Findings will inform efforts by revenue authorities and others to address the effects of illicit trade and counter tobacco industry claims.
... First, there are at present only two sources of time-series estimates on the illicit cigarette market for EU countries, namely Euromonitor International and KPMG. Both sources have been criticized for scant transparency and independency (Blecher 2010;Lencucha and Callard 2011;Joossens et al. 2014;Gilmore et al. 2013;Blecher et al. 2015;Gallagher et al. 2019). While we share some of the concerns about these estimates, we contend that there are no reliable alternatives to these sources at present. ...
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