Malta had one of the highest rates of contraband cigarettes in Europe in 2018, despite a decrease over the previous year, a new report has found.

The black market cigarette trade was estimated to have cost the public coffers some €12 million in uncollected tax revenue last year.

This reflected a decrease of €4 million over the preceding year, with the report attributing this to increased enforcement by the local authorities.

The illicit cigarette trade cost EU economies €10 billion in lost taxes during 2018. The KPMG Stella report, a study of illicit cigarette market in EU, reveals changes in patterns of counterfeiting and contraband cigarettes across European markets as States strengthen efforts to curb illegal inflows.

In all, 43.6 billion illicit cigarettes were consumed in the EU last year, continuing a downward trend by 1.1 billion over 2017. Despite being slightly down, the share of the total illicit cigarette market remains stable at around 8.6 per cent of annual cigarette consumption.

Increased Customs enforcement

In Malta, the number of cigarettes consumed increased to 600 million over 2017, which the report said may be supported by consumers switching to manufactured cigarettes from other tobacco products as well as increased tourism flows.

The share of illicit cigarettes consumed was down to 9.7 per cent from the 13.5 per cent in 2017. This was the first time that the rate fell below 10 per cent since 2014.

These are the first signs of the increased enforcement by Customs in relation to tobacco illicit trade tackling, together with tax stability, the report says.

Hot zones for counterfeit and contraband cigarettes were Żabbar, Qormi, Sliema, Birkirkara, Naxxar and Mosta.

According to the report, Malta received the bulk of its illicit tobacco from Italy, Bulgaria and Libya as well as from other countries with no country-specific labelling.

Malta was also highlighted as being a transit country through which large quantities of illegal cigarettes passed.

In 2018, France and Italy were the countries which received most illicit cigarettes.

Sharp increases in Greece, UK

The study found that the volume of non-domestic cigarettes increased for the first time since 2014. The surge was partly propelled by residents living close to frontiers legally purchasing cigarettes in bordering countries that offer better prices. This phenomenon was well pronounced in Italy and France.

France retains the highest rate of counterfeit and contraband cigarettes in terms of volume. Results showed a decrease in illicit trade in 11 EU countries, but sharp increases in Greece and the UK.

In total, nearly €30 million of State revenues have been lost in the last two years.

Illicit trade across the EU continued to decrease, but researchers observed an increase in counterfeit products and illicit whites by 33 per cent and 15 per cent respectively. The surge in counterfeit cigarettes, which amounts to 5.5 billion sticks, is the highest rate since the records began in 2006. 

The report found that efforts to stem the inflow of illicit cigarettes from non-EU countries seemed to have had an impact as data showed a drop of 15 per cent in movements from Algeria, Ukraine, and Belarus. Inflow from outside the EU is, nevertheless, the largest source of counterfeit and contraband. 

Contraband cigarettes are genuine tobacco products that get illegally diverted into a market for which they are not originally intended, while counterfeit cigarettes are tobacco products manufactured without the permission of the trademark holder.

Enforcement officials, however, are seeing a change in trend as production of counterfeit and illicit whites within EU borders is growing.

‘Illicit whites’ are cigarettes manufactured for the purpose of being smuggled and sold illegally elsewhere. They make up about a third of the counterfeit and contraband market across Europe, with the foremost three brands being Marble, NZ and Regina.

In Malta some 37 million illicit whites where consumed in 2018.