Retail News May Tobacco

60|Retail News|May 2014|www.retailnews.ie

Tobacco

Taking On the Illicit Trade Ireland’s illegal tobacco trade is flourishing despite efforts to combat it, according to JTI Ireland’s Illicit Tobacco Trade Review 2013.

WHEN it comes to illicit tobacco, criminals are earning profits equal to 1,000 times the fines imposed by Irish courts, according to JTI Ireland Ltd’s new report into the illegal trade of tobacco products in Ireland.

The review, which examines the illegal trade in the current economic environment, estimates that non-duty paid tobacco is costing the exchequer €250m and the retail trade €450m annually.

Ireland has one of the highest rates of illegal tobacco trade in Europe and one in four cigarettes consumed are not taxed. Combating this is a key business priority for JTI. “We are committed to fighting this highly damaging and unregulated trade,” stresses John Freda, General Manager of JTI Ireland. “This is costing retailers and the taxpayer hundreds of millions, and continues to fuel crime in communities across Ireland.”

Non Irish Duty Paid Tobacco In 2013, the joint industry Empty Pack Survey (EPS) indicated that the level of non Irish duty paid (NIDP) tobacco in Ireland was at 28.3%, a marginal increase on the 28.2% recorded in 2012.

This is in line with trends over the past three years, which have shown a

consistent gradual increase.

Non Irish duty paid products are made up of illegal tobacco products sold in Ireland and legal cross border purchases. Revenue’s latest estimate puts the level of NIDP tobacco products consumed in Ireland at 19%. Industry estimates, which take account of the growth of the roll your own (RYO) segment, estimate that the Irish Exchequer fails to collect duty on nearly one in four of all cigarettes consumed in the State.

“Every country with high tobacco

taxes has an illegal tobacco problem,” Gerard Moran, Assistant Secretary, Revenue Commissioners, told the Oireachtas Health Committee Hearing in January of this year. “Ireland, which has exceptionally high tobacco taxes and tobacco prices, has a significant problem.”

Cigarettes in Ireland remain the most expensive within the Eurozone region, with a premium average price of €9.50 per 20-stick premium pack compared to €3.40 in Poland (as of February 2014). Ireland has the highest tobacco prices among the Eurozone member states, with 80% of the retail selling price of every packet of cigarettes sold in the legitimate retail trade going to the Exchequer in VAT and excise.

Revenue Seizes The Opportunity In 2013, the Revenue Customs Service, having made 6,888 seizures, confiscated a total of 40.8m cigarettes, with a retail value of approximately €18.9m, and 4,203kg of loose tobacco worth approximately €1.7m.

More than 60% of cigarettes seized in 2013 by the Revenue Customs Service were illegal whites. These illegal cigarettes are manufactured by small indigenous tobacco companies

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Tobacco legitimately operating in their own countries but with absolutely no connection to any of the tobacco companies that legally supply tobacco products in Ireland.

In 2013, the Revenue Customs Service secured convictions against 87 people for smuggling or other illegal tobacco offences. The courts imposed 37 custodial sentences, 19 of which were suspended, ranging from two months to three years.This equates to average fines for tobacco related excise offences of €2,800, with a fine total of €169,750.

It is estimated that criminal gangs make in the region of €3m each week from the illicit tobacco trade (Tackling the Black Market and Retail Crime, Retail Ireland, 2012).

The Societal Cost of the Black Market The illegal tobacco trade has huge societal impacts, not just in terms of lost revenue for both Government coffers and legitimate retailers.

Criminals and gangs often use children to sell products and channel the profits into other illegal activities.

While legitimate tobacco retailers are highly regulated with regard to the sale of tobacco to minors. Within the illegal trade, however, no such control exists and tobacco products are sold to minors and by minors on a regular basis. Detective Superintendent George Kyne of the National Bureau of Criminal Investigation recently referred to reported instances of where children were being used as runners by cigarette gangs.

“Cigarettes are at least 50% cheaper on the streets than the ones sold by legitimate retailers, which encourages minors to buy illegal tobacco in unregulated markets and back alleys,” stresses Freda.

At €1,064m, tobacco excise receipts in 2013 continued a year on year decline. This is despite the fact that smoking prevalence has remained relatively constant during 2013, the report argues, indicating further displacement to the illegal trade.

The Australian Evidence The JTI report examines potential future drivers of this trade, including the Government’s proposal to introduce plain packaging for tobacco products and the revised EU Tobacco Products Directive. In 2012, the Australian Government introduced several tobacco control measures, including high excise increases and plain packaging, which have fuelled the illegal trade of tobacco.

There has been a 20% increase in the first year following the introduction of these measures, according to a report released by KPMG (Source: Illicit

Tobacco in Australia – 2013 Full Year Report: KPMG, 2 April 2014).

“Ireland already has the highest priced cigarettes in the EU. Plain packaging will only make matters worse and serve the interests of criminal gangs, as it has in Australia,” emphasises Freda.

The report examines alternative ways to achieve public health benefits.

These include preventing minors from accessing tobacco products by reinforcing the age limit through initiatives such as the industry supported youth access prevention programme, Show Me I.D – Be Age Ok, which has sought to assist retailers in ensuring that all their staff comply with the laws regarding sales of tobacco products to minors. They also call for meaningful policies that make it harder for children to get their hands on tobacco, such as punishing adults who knowingly buy tobacco products for children.

Before doing anything else, Government simply must prioritise and focus on stopping children’s access to cheap tobacco products from the unregulated market, the report argues, while also calling on the Government to establish targeted, comprehensive programmes in schools to tackle peer pressure, which is a key driver of youth smoking.

closely with the authorities to fight smuggling. In fact, in 2013, JTI supplied information to OLAF relating to over four billion cigarettes in over 80 suspect shipments across Europe,” stresses Freda.

Reversing the Trend Reversing the trend of the illegal tobacco trade is a key part of the report.

European Member States can now access funding under the newly endorsed Hercule III anti-fraud programme, a financing programme managed by OLAF, the European Anti-Fraud Office, which will make €70m available to fight fraud, corruption and other illegal activities.

Under the Hercule III programme, the EU will co-finance activities, including technical assistance, the purchase of equipment such as scanners, and specialised training, up to 80% of the eligible projects. This is an increase from the previous funding programme, which only allowed funding of 50% of projects.

JTI actively works with law enforcement to combat the illegal trade, supplying information and providing training in order to facilitate seizures. The company has contributed hundreds of millions of Euros to an EU-wide fund (http://ec.europa.eu/ anti_fraud/investigations/eu-revenue/ japan_tobacco_2007_en.htm), which the Irish Revenue Customs service has used to invest in programmes.

“We will continue to work

Burning Issues

Interdepartmental Committee Finally, the report calls on the Government to establish an interdepartmental committee to focus on the illegal trade of all products, including tobacco.

“It’s clear that the pragmatic law enforcement approach to fighting the illegal trade can work,” argues Freda.

“However, this must be married with a coordinated Government approach at the decision-making level, and this is not happening.”

However, Freda welcomed Finance Minister, Michael Noonan TD’s recent commitment to the establishment of an informal working group on the illicit trade. “We welcome this initiative; it’s a step forward in the right direction,” concludes Freda. “This would be a significant step forward in bringing together all concerned stakeholders to devise one coherent strategy for Ireland to combat unlawful tobacco sales. It is only through collaborative initiatives between all relevant stakeholders such as this that sustainable progress will be achieved.”

• The tobacco category was worth €1.7bn in 2013 down -5% in value and -4.3% in volume. This is a slower decline than in 2012, when volume declined by -5.3%.

• Six brands out of Ireland’s Top 10 Brand Ranking are tobacco brands. Silk Cut, Benson & Hedges, John Player Blue and Marlboro are the top four, with Mayfair ranked 8th. Amber Leaf RYO is ranked 9th, up from 23rd position in 2012.

• Tobacco still ranks third in the grocery industry’s percentage share of retail value and still accounts for between 33% and 43% of symbol and forecourt sales.

(Source: JTI 2013 Category Review)