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EU’s illegal cigarette trade fell in 2013

| June 25, 2014

One in every 10 cigarettes consumed in the EU during 2013 was illicit, according to a new KPMG study carried out on behalf of British American Tobacco, Imperial Tobacco, Japan Tobacco International and Philip Morris International.

Thirty-three percent of these illicit cigarettes comprised “illicit whites,” an emerging type of branded cigarette manufactured for the sole purpose of being smuggled, according to an Imperial press note quoting the study, which was published yesterday. Given this level of illicit trade, EU governments were said to have “lost” about €10.9 billion to the illegal trade.

KPMG found that while the number of “illicit whites” consumed increased by 15 percent compared with the number consumed in 2012, overall, the illegal trade of cigarettes in the EU declined slightly from a record high of 11.1 percent in 2012 to 10.5 percent in 2013.

This decline was said to have been due to a significant decrease in contraband cigarettes (otherwise licit cigarettes typically smuggled from low tax countries to high tax countries) as the tobacco industry, governments and law enforcement agencies increased efforts to curtail this activity.

KPMG found that the highest proportions of illegal trade during 2013 occurred in Latvia (28.8 percent), Lithuania (27.1 percent), Ireland (21.1 percent), Estonia (18.6 percent) and Bulgaria (18.2 percent).

And it found that the highest volumes of illicit cigarettes were consumed in Germany and France, with 11.3 billion and 9.6 billion, respectively, and Poland and Greece, where “illicit whites” accounted for 9.1 percent and 12.2 percent of consumption, respectively.

Other key findings of the study included:

* Overall, 58.6 billion illicit cigarettes were consumed in the EU in 2013; the equivalent of the total licit cigarette markets of Spain and Portugal combined.

* The prevalence of contraband, which excludes “illicit whites” and counterfeit products, dropped by 26.7 percent to 35.6 billion cigarettes.

* The consumption of illicit whites reached a record high of 19.6 billion cigarettes in 2013, from virtually zero in 2006.

* The highest illicit white volumes in 2013 were measured in Poland (4 billion), Greece (2.8 billion), Spain (2.5 billion), Bulgaria (1.6 billion) and Germany (1.4 billion).

“Despite the overall decline in the illegal market in 2013, the EU’s black market for tobacco remains a significant source of revenue loss for governments and a resilient competitor to the legitimate manufacturers and trade,” said the Imperial note. “This illegal activity not only comes at a financial cost, but it fosters criminality in local communities.

“British American Tobacco PLC (BAT), Imperial Tobacco Group PLC (Imperial), Japan Tobacco International (JTI) and Philip Morris International Inc. (PMI) continue to devote significant resources to combat this problem—above the requirements set out in their Cooperation Agreements with the European Commission—underpinned by the conviction that effective solutions require solid cooperation between governments, law enforcement agencies, manufacturers and retailers.”

For the first time since its inception in 2006, KPMG’s study was commissioned by all four major tobacco manufacturers operating in the EU, which provided KPMG with access to a wider set of data sources, allowing it to further refine and improve the completeness of the analysis.

Prior to 2013, the study was commissioned by PMI as part of the company’s commitments under its Cooperation Agreement with the European Commission.

The 2013 KPMG study on illicit cigarette consumption in the EU is available on KPMG’s website: http://www.kpmg.com/uk/projectsun2014.

Capsules delivering multiple flavors

| June 25, 2014

KT&G has launched on the South Korean market a capsule-filter cigarette that delivers two flavors, according to a story in The Korea Herald quoting a company announcement on Monday.

Raison Sun Presso is the latest edition to KT&G’s Raison Presso brand launched in 2012.

Each cigarette contains a capsule in the filter that when popped releases two flavors.

The new package contains an image of waves under the burning sun on the front side and a photo of a capsule popping on the back.

The new cigarette is available for WON2,500 a pack.

Meanwhile, JTI Korea launched on June 18 a new capsule-filter cigarette that provides for the delivery of more than one flavor, according to another story in the Herald and quoting a company announcement yesterday.

Each package of Mevius Option2 contains 15 cigarettes with what are referred to as “cooling pop” menthol capsules embedded in the filter, and another five cigarettes with “double capsules” that add a tangy flavor.

JTI Korea said the new product was designed to allow consumers to experience up to four different flavors: straight tobacco, tobacco with menthol, tobacco with the tangy flavor or tobacco with menthol and the tangy flavor.

Mevius Option2 delivers 6 mg of tar and 0.5 mg of nicotine and is priced at WON2,700 won a pack.

New government looking for more taxes

| June 25, 2014

Indian Health Minister Dr. Harsha Vardhan is proposing a tax hike of INR3.5 per stick on cigarettes of all lengths and the removal of tax exemptions for bidi manufacturers as part of the new government’s 2014–2015 budget, according to a story in the latest issue of the BBM Bommidala Group newsletter.

The budget is due to be presented on July 10.

Vardhan, in a letter to Finance Minister Arun Jaitley, said raising the duty on cigarettes as a percentage of the retail price from about 45 percent to more than 60 percent would yield public health as well as fiscal benefits.

He said the previous government’s 19 percent increase on cigarette taxes in the February 2013 budget had been too meagre to have any meaningful impact.

In any case, since the increase had been focused on longer cigarettes, it had led to a spike in the production of smaller cigarettes.

Applying the levy to all cigarettes would prevent the industry shifting production and marketing shorter-length products.

Vardhan wants the bidi industry to be redefined to ensure the collection of revenues due and prevent tax evasion in the long run.

E-cigarettes raise taxing question

| June 25, 2014

Quitting smoking in the Philippines might soon become more expensive and, therefore, more difficult because the authorities there are considering the imposition of higher taxes on e-cigarettes, according to a story in the Philippine Daily Inquirer.

While the benefits of e-cigarettes over tobacco cigarettes were still being debated, Commissioner Kim Jacinto-Henares of the Bureau of Internal Revenue said tax-wise, both might be considered the same thing.

“[The question is] whether we can already cover [electronic cigarettes] with the present law because it’s just a different permutation of a cigarette,” she said. “It’s still a cigarette. That’s one way to tackle it.”

The use of e-cigarettes is marketed as being one way to help people quit smoking, but the Philippine Medical Association (PMA) last year urged President Benigno Aquino to ban advertisements that suggested e-cigarettes presented a safe way of quitting.

And some health advocates have pushed for a ban on e-cigarettes.

India mulls over tobacco buying age of 25

| June 24, 2014

The Indian Health Ministry is considering a plan to lift the minimum age for buying tobacco products from 18 to 25, according to a story in the most recent issue of the BBM Bommidala Group newsletter.

Health Secretary Lov Verma said the ministry was writing to the state governments, which are responsible for such matters, asking them to lift the age.

The ministry said also that it would submit further suggestions to the states, including raising VAT on tobacco products and creating greater awareness about the dangers of smoking.

Philippines might bring in minimum price

| June 24, 2014

The Philippines’ Bureau of Internal Revenue (BIR) has suggested setting a minimum price for all cigarettes sold in the country “to ensure a level playing field” and discourage more people from taking up smoking, according to a story in The Philippine Star.

BIR commissioner Kim Henares broached the idea during a forum held yesterday, at which she was asked about the steps the government was taking about the proliferation of PHP1 per-stick cigarettes.

The second part of the so-called sin tax law (Republic Act 10351) was introduced in January 2013 with the aim of making tobacco more unaffordable to the public.

Henares said the implementation of the sin tax law in January 2013 had resulted in increased revenues for the government and that she saw no need to amend the “landmark reform.”

“I think you should lobby for a law which will require a minimum price, and not to touch the sin tax law anymore,” she told the forum delegates. “Lobby for a law that cigarettes in the Philippines should not be sold at below a certain price.

“If your complaint is about the cheapness of the price, then you go to the cost, you put a floor on the price. I don’t know how much it should be but the price is not an issue for the BIR.”

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