The amount of tobacco smuggled into Malta grew by some 28 per cent last year, costing the Treasury about €10 million in lost revenue, an EU-wide report seen by the Sunday Times of Malta has estimated.
The study found that while the total legal consumption of cigarettes declined, the amount of contraband and counterfeit cigarettes entering the Maltese market went up.
The report attributed the increase in illicit trade to the rise in tax. It said taxes on tobacco products had aimed to increase State revenues but instead they had led to “significant illicit trade increase” and loss of millions of euros.
Sixty per cent of the illicit flows was made up of cigarettes that are usually manufactured legally in one country or market but which the evidence suggests were smuggled across borders en route to the destination market. Known in technical jargon as ‘illicit whites’, the figure had stood at just 22 per cent in 2014.
The report was compiled by international auditing firm KPMG LLP in the UK for British American Tobacco (Investments Limited), Imperial Tobacco Limited, JT International SA and Philip Morris International Management SA. Called ‘Project Sun’, it looked at the illicit cigarette market in the EU, Norway and Switzerland.
Tax on tobacco products led to significant illicit trade increase
It highlights that at European level, total illicit cigarette volumes account for nearly 10 per cent of all cigarettes consumed. If all these contraband and counterfeit cigarettes in the EU were to have been consumed legally, an additional tax revenue of €11.3 billion would have been raised across the EU, the report found.
While contraband and counterfeit tobacco increased, total legal consumption of manufactured cigarettes declined, the study found.
A total of 53 billion illegal cigarettes were consumed in the European Union in 2015, accounting for one in every 10 cigarettes consumed. This criminal activity cost EU governments up to €11.3 billion in lost tax revenues.
Law enforcement, stricter controls at borders, appropriate tax policies, strict supply chain controls and intelligence resulted in a decline of around 20 per cent in the illegal flow originating from within the EU, the study said.
This means that 88 per cent of illegal cigarettes now come from non-EU countries. A key trend identified in the KPMG report is the growing proportion of counterfeit and illicit white brand flows compared to previous years. Illicit whites accounted for over one third of all illegal cigarettes, whilst counterfeits grew to 4.7 billion cigarettes.
The largest portion of illicit whites – 5.3 billion cigarettes – were in packs with Belarussian labelling.
The country with the highest amount of contraband and counterfeit cigarettes was France, followed by Poland, the United Kingdom, Germany and Italy.