Asia 11 study on illicit tobacco in 2012
Andy Logan
Associate Director, Oxford Economics
2 July 2014
Methods to estimate the scale of illicit cigarettes
Smoker surveys
Empty pack and cigarette butt collection and analysis
Household surveys/consumption estimates compared with tax-paid products
Seizures
International trade data
Empty pack surveys
Collect empty packs and analysing discarded butts.
Industry recognizes EPS as best practice as evidence of actual activity.
Run by external agency.
A few minor problems with EPS
Geographical coverage – e.g. is the coverage of urban vs rural locations appropriate?
Timing of survey – e.g. is there a possibility that the findings are not representative as they cover periods when tourist flows are greatest?
Brand coverage – e.g. does the survey exclude important brands given market composition?
Packs versus sticks – e.g. how does the survey treat differences in pack size and what implications does this have for estimates of non-domestic/illicit incidence?
Other tobacco products (OTPs) – e.g. to what extent do the surveys include the illicit trade in OTPs?
Direct surveys of smokers
Asking samples of smokers where they buy their tobacco products.
Advantage
Provides a more direct route to assessing the size of the problem of illicit purchases at any point in time.
Problems
Respondents under report the extent to which they smoke.
Under report the extent they consume illegal products.
May not even be aware that they are purchasing illicit tobacco.
Compare duty paid to estimates of consumption
Legitimate Consumption
Duty Paid Consumption
Cross-boarder shopping
Duty Free
Illegitimate Consumption
Total Consumption
Legitimate Consumption
Compare duty paid to estimates of consumption 2
Total consumption
Estimates of prevalence (proportion of the population that smokes cigarettes)
Estimates of cigarette consumption per smoker
An uplift factor covering under-reporting
Estimates of the adult population
Problems:(1) There are some smokers who do not admit they smoke(2) Some of the smokers who admit they smoke do not know how
much, or choose to under-report the amount
Seizures by police or customs authorities
The quantity of illegal cigarettes seized by the authorities
Advantages
Official government statistics.
Useful to understand illicit trade routes.
Problems with this measure
Can only represent a small proportion of the illicit trade.
If comparing over time, ignores effort and expenditure levels of the enforcement authorities.
Some element of luck.
Using trade data
Focuses on inwards flows of cigarettes into a country
Does the value of country A’s exports of tobacco to country B should equal B’s imports from A.
Advantages
Trade data readily available.
Problems
Different countries’ trade recording systems have different accuracies.
Exchange rate valuations.
Lessons on measurement techniques
All five methods have their strengths and weaknesses.
Empty pack surveys are probably the best method of calculating the size of the illicit market.
Useful to repeat the same method over time to understand whether the illicit trade is growing or decreasing and at what rate.
But should monitor a number of the methods to see if you get a consistent picture.
Asia 11 report
To establish credible estimates of consumption of illicit cigarettes and the impact this has on tobacco tax revenue for 11 markets in Asia. To do this it:
Validate illicit incidence levels, reviewing and refining estimates currently available through Empty Pack Surveys and other sources.
Estimate Illicit Consumption in terms of volume, including where possible a breakdown by country/market of origin and a breakdown between legal and Illicit Consumption.
Estimate annual government revenue losses from excise, VAT/GST, and earmarked taxes on cigarettes.
Countries in the study
Whole market
Asia-11: Consumption breakdown
Estimates of individual country shares
Estimates of the number of illicit cigarettes
Estimates of illicit market share
Estimates of tax losses
Further analysis of illicit
Estimated make-up of illicit in each country
Conclusions from Asian 11 report
In 2012, 9% of cigarettes consumed in Asia-11 were illicit.
Illicit share was over 25% in five markets (Hong Kong, Malaysia, Singapore, Pakistan, and Brunei)
Illicit volumes were highest in Pakistan, Vietnam, and Malaysia.
Domestic illicit cigarette volumes were highest in Pakistan and the Philippines.
Asia-11 government tax revenue losses from Illicit Consumption totalled US$ 3.4 billion in 2012.
Thank you