Curbing Revenue Losses From Illicit Tobacco Trade
The Federal Ministry of Health in August 2017 disclosed that about 4.5 million Nigerians consume 20 billion cigarettes yearly. However, it is not known what portion of this volume is supplied via illicit trade.
Illicit tobacco trade is defined by the Financial Action Task Force (FATF 2012) as “the production, import, export, purchase, sale, or possession of tobacco goods which fail to comply with legislation”.
The World Health Organisation (WHO), in its 2015 report on illegal trade in tobacco products, revealed that one in every 10 cigarettes globally might be illicit and this number is much higher (averaging 16.8%) in low income countries that have higher incidence of smuggling.
It also estimated in the WHO report that governments would gain $31billion annually by eliminating illicit trade in tobacco. The major factors that influence illicit trade and smuggling were listed to include the ease and cost of operating in a country; tobacco industry participation; level of sophistication of organized crime networks; the tax administration system’s efficiency and integrity; and the likelihood of being caught and punished.
Illicit tobacco trade occurs in several forms. Some criminal gangs produce counterfeit cigarettes that are usually difficult to distinguish from genuine products and these are sold at cheaper prices. Smuggling rings also peddle cigarettes across borders thereby engaging in large scale tax evasion. Smuggling occurs for both real and counterfeit products.
This scourge is being tackled globally by various agencies such as WHO, through the Framework Convention on Tobacco Control (WHO FCTC) with the establishment of an International Tobacco Protocol that will be ratified and implemented by governments. Its overarching objective is to eliminate illicit trade in tobacco products. So far, 54 countries are signatories to the protocol, while 48 countries are categorized as parties to the protocol because they have gone ahead to either ratify or accent it.
The International Police (INTERPOL) has also partnered with the major cigarette manufacturers such as British American Tobacco, Philip Morris International, etc., to create an international framework to combat illicit trade in tobacco. Other fronts from which illicit trade is being fought are The United Nations Convention against Transnational Organized Crime (UNTOC) and the United Nations Convention against Corruption (UNCAC) with greater involvement of national governments.
These global efforts notwithstanding, every country must identify the peculiarities of the problem within its borders and establish effective measures to tackle them while also pursuing transnational initiatives to prevent smuggling and illegal importation.
In March 2014, Premium Times, an online news publication, released details of its investigative report into the threat of illicit tobacco trade. The report suggested that the WHO report on illicit tobacco in Nigeria, which showed a reduction to 10% in 2012 from 30% in 2005 was not robust enough as a lot of illicit products entering the country through the land borders were not factored into the findings by the WHO. The report detailed how illicit cigarettes are smuggled through various land borders across Nigeria and how easily peddlers sold these items on the streets and shops. The report also revealed the existence of locally manufactured cigarettes with false locations listed as their factory addresses.
In 2015, the National Assembly passed the National Tobacco Control Act (NTCA) 2015 to regulate and control the manufacture, sale, advertising, promotion and sponsorship of tobacco or tobacco products in Nigeria and for related matters. The NTCA 2015, which was enacted with the support and cooperation of the major cigarette manufacturers in Nigeria, facilitated the establishment of the National Tobacco Control Committee as well as the Tobacco Control Fund.
The provisions of this act, which cover sundry aspects of the industry, including regulation of smoking; prohibition of tobacco advertising promotion and sponsorship; tobacco product sales; tobacco contents and emission disclosures; tobacco product packaging and labelling; licensing of dealers; enforcement; education, communication, training and public awareness, provided effective regulation for the legal players in the industry.
However, illicit trade has continued to thrive despite the NTCA and this may not be unconnected with the level or quality of enforcement of its provisions. While it has encouraged the legal industry players to adhere to international best practice, the NTCA apparently has very minimal effect on the activities of illegal business operators.
The likelihood of being caught and punished is a major deterrent to engaging in illicit trade but the risk remains abysmally low in Nigeria. Therefore, a lot of unscrupulous entities are drawn to a seemingly “low risk, high reward” environment that Nigeria offers.
Additionally, the ease with which they can operate within a country is an important determinant for smugglers and illicit traders. Nigeria’s porous land borders provide very little resistance and there exists yet many illegal entry points into the country. This continues to make Nigeria very attractive to various syndicates that are involved in the global illicit tobacco trade.
Expectedly, illicit trade results in revenue loss to the nation as taxes and excise duties that would have accrued on the legal trade of these items are lost to smuggling syndicates. It also poses a great danger to the commercial investments of industry operators as increasingly bigger chunks of businesses are lost to illicit traders who sell at far cheaper prices by marketing counterfeits and through tax avoidance.
Illicit tobacco trade poses yet another threat to Nigeria. Interpol, WHO, The United States Department of Justice all claim that the black market in tobacco is a chief source of funding for organized crime syndicates and terrorist organizations. Curbing illicit trade in Nigeria could thus stifle the funding of the different terrorist activities in the country while reducing government’s escalating costs of combating terrorism and other forms of organized crime.
To curb illicit tobacco trade in Nigeria, the battle must begin at the entry points.