Economics of Tobacco Control Project Investigates Illicit Trade of Cigarettes

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Many governments perceive that the illicit trade of tobacco products is an obstacle to implementing pro-health tobacco tax policies. In addition, it deprives governments of revenue. The tobacco industry has previously used the scale of the illicit trade to argue against the increase in excise duties.

To try to establish objective evidence of the size of the illicit market in relation to the overall market, the Economics of Tobacco Control Project (ETCP) is investigating the links between tobacco taxes and the illicit cigarette trade in four countries: South Africa, Mongolia, the Republic of Georgia and The Gambia. The project, which began in 2015, is funded by Cancer Research UK.

The ETCP used a range of methods to estimate the size of illicit trade in these countries where data is collected before and after a tax increase. The method used in each country depends on the local context. In Mongolia, discarded cigarette packs were collected from the ground or the tops of bins. From the pack we can tell whether excise tax has been paid (from the presence of a tax stamp) and whether the pack complies with packaging regulations (such as pictorial health warnings).

While this is an effective method in Mongolia, it cannot be applied to South Africa, as we do not have an excise stamp. In South Africa, we focused the analysis on six townships in four provinces. We conducted a household survey where we interviewed smokers and asked them about the prices they paid for their last cigarette purchase. Using a threshold price, we can ascertain whether excise taxes have been paid or not.

Data from the fifth wave of NIDS was also used to establish the number of smokers and the prices they paid for cigarettes. A significant 30% of sales were found to be illicit – that is outside of the tax net. Surveys were also used in The Gambia and Georgia.

The ETCP aims to publish five articles in an upcoming illicit trade special edition of the Tobacco Control journal, and has contributed a paper to the NIDS Wave 5 research papers. One article has already been published and the other four are forthcoming.

In three of the four countries, tobacco tax increases did not impact on the magnitude and the nature of illicit tobacco trade. In The Gambia, only one round of data was collected, hence it is impossible to make any links between illicit trade and excise tax increases. The evidence from the three countries shows no link. The perceived threat of illicit trade should therefore not be used to argue against higher excise taxes, which are an effective tool to lower smoking prevalence, thereby improving public health.

The ETCP is disseminating this research to the public in order to counter the tobacco industry rhetoric. On 2 October 2018, Hana Ross from the ETCP was interviewed by a Georgian TV station about the results of the study. In January 2019, a substantial tobacco tax increase occurred in Georgia and the ETCP hopes that the illicit trade research was helpful in the process.

The results of Mongolian study were broadcast on ten local TV news channels and appeared in multiple newspapers November 28 – 29, 2018.

In 2019, the ETCP will conduct another wave of data collection in South Africa and in Georgia. The ETCP plans to write three more research articles analysing this data. One paper will synthesise the results from all four countries.