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Illicit Trade in Tobacco ProductsIllicit Trade in Tobacco Products

Vinayak M. Prasad, MDDirector, Ministry of Health and Family Welfare, India

2007 Johns Hopkins Bloomberg School of Public Health

Section ASection A

Illicit Trade and Public Health: General Overview

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Learning Objectives

What is illicit trade?

How illicit trade impacts on public health?

What contributes to illicit trade of tobacco?

Country case studies

How can illicit trade be controlled? Globally accepted strategies

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Illicit Trade: Definition

Article 1 World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC): “Any practice or conduct prohibited by law and which

relates to production, shipment, receipt, possession, distribution, sale or purchase including any practice or conduct intended to facilitate such activity”

Source: World Health Organization. (2003).

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Why Bother with Illicit Trade?

Source: World Health Organization. (2002).

“Tobacco smuggling undermines national pricing policies, deprives governments of revenues used to combat smuggling, permits tobacco companies to subvert international cooperation in tobacco control and above all, undermines legal restrictions and health regulations, such as those that deal with health warnings and sales to minors.”

—Dr. Derek Yach, WHO’s Executive Director, August, 2002

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Why Bother with Illicit Trade?

Public health impacts Access to cheap tobacco Adversely affects tobacco control measures

Economic impacts Increases health care costs Loss of revenue Increase in crime

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What Leads to Illicit Trade?

Price-tax differentials

Poor enforcement capacity Revenue administration/customs

Poor paying capacity of individuals who are addicted to tobacco

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Text source: World Health Organization. (2003); Image source: World Health Organization. (2005).

FCTC Article 15

Recognizes elimination of illicit trade as essential to tobacco control

Suggests legislative, executive, administrative and other measures E.g., Marks and

numbers, tracking and tracing, exchange of information, etc.

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Country Experiences

Raising or lowering taxes: enforcement? Canada Spain U.K. and France Bhutan India

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Country Experiences

Canada Lowering taxes did not deter evasion/smuggling

Spain Increase in taxes did not increase smuggling as

enforcement action was substantially improved

U.K. and France The higher taxes in the U.K. vis-à-vis France created a

greater incentive to smuggle

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Bhutan

December, 2004: ban on manufacture/sale The first country in the world to do so

The benefits have been marginal—why? Porous Indo-Bhutan land border

Result: thriving black market for tobacco Lesson learned: bans will not work in isolation without

inter-country strategies

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Source: *United States Department of Agriculture, Foreign Agricultural Service. (2003); †The Tobacco Atlas, 2nd Edition. (2006).

India

In 2002 to 2003, India’s share (488,130 tonnes) was approximately 7.5% of world’s consumption of unmanufactured tobacco*

Non-cigarette forms constitute 4/5th of consumption (contrary to global trends)

Tobacco consumption—high prevalence (47% males; 14% females)†

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Source: National Sample Survey, India, 55th Round. (2000).

Types of Tobacco Use in India

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Tobacco Taxes in India (in Millions of USD)

Source: Global Youth Tobacco Survey. (2006).

2003-2004 2004-2005 2005-2006

Cigarettes 1099.0 1198.87 1422.0

Bidi 54.4 55.6 47.2

Chewing tobacco 122.6 124.0 130.0

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Trend of Illicit Indian Trade: Cigarettes

Cigarettes Multiple tax structure Cheaper/smaller cigarettes: less tax Shift in trend from Bidi to low cost cigarettes Industrial licensing from government Control of the manufacture/supply trade by government

Less incentive for illicit trade/smuggling Smuggling to Bhutan from India Smuggling from Bangladesh to India Free Trade Agreement (FTA) with Sri Lanka Foreign Direct Investment (FDI)/Special Economic Zone

policy: could make India the manufacturing hub for the world

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Trend of Illicit Indian Trade: Chewing Tobacco

Chewing tobacco India: Oral cancer widespread > 30% of tobacco consumed is chewed Contrary to evidence of widespread consumption—

static revenue collection Rampant evasion/illicit trade/illicit manufacturing of

chewing tobacco > 700 cases of evasion of excise duty, involving $100

million USD (2005-2006) High tax incidence (33%) Poor enforcement/corruption No licensing/no tracking

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Trend of Illicit Indian Trade: Bidis

Bidis > 50% of tobacco consumed in India Poor man’s cigarette—negligible tax No documented report of illicit manufacturing; evasion

of domestic taxes No reports of smuggling to other countries Poorly regulated

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India: Trend of Illicit Trade

No clear estimates of smuggling

Open land borders (more than 5,000 kilometers)

Free movement of people and goods between countries

Smuggling reported from India to Bhutan, Myanmar, Pakistan, and Nepal

Largely associated with bootlegging

Recent reports of involvement of a few organized syndicates (Dawood Ibrahim)

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India: Trend of Illicit Trade

Within India there are . . . Best practices of tobacco control for the organized

sector of cigarettes Poor control for chewing tobacco Poor policies for Bidis

Indicates the need for a more comprehensive approach to tobacco control within the country in terms of taxation, trade, economic policy, and enforcement policy