Announcements, News, Activities - One

1/8/2019


Activities  

ILLEGAL TRADE WITH TOBACCO PRODUCTS- URGENT IMPLEMENTATION OF THE LAWS


Starting in 2017, the illegal tobacco (known as cut tobacco) started to emerge all over the country, initially only at selected locations. However, the erosion of the legal tobacco market in 2018 continued with even greater intensity. Therefore, in 2018 it is expected that the legal tobacco market suffers an alarming fall of more than 11,0% compared to the previous year (average annual decline of the market in the period from 2015 until 2017 was about 1,9%). As a result of this fall, the incomes from the tobacco excise are expected to decline compared to last year (- 2,2%). The members of the Group of cigarette production within the Economic Chamber of Macedonia agree that the main reason for this staggering fall of the legal tobacco market is the development of the trade with illegal tobacco and the lack of implementation of the Law so that this type of occurrence is prevented. According to our opinion, the illegal tobacco has already endangered the stability of the legal market, as well as the sustainability of the state incomes and the industry as a whole. Hence, it is absolutely indispensable for the Government to immediately take some action and to intensively implement the Law against this illegal activity.

Illegal tobacco market

From a historic point of view, the flexibility of the cigarette prices in Macedonia is - 0,4. Having into consideration the recent increase of the retail prices (in the period 2015-2018) it would be expected for the overall market to decline between 2% - 4% per year on the basis of the price flexibility. However, the decline of the market in 2018 is far greater (11,0%). The illegal tobacco is the main explanation about the difference between the decline expected to take place in 2018 (2% - 4%) and the factual reduction (11%) based on the following facts:

• The biggest fall of excise control measures is perceived for the cheapest legal brands. This shows that the consumers of the cheapest legal brands turn to the illegal cut tobacco.
• Increased availability of the illegal cut tobacco. In 2017 the cut tobacco was available only at selected locations (for example Bit Pazar), but, however, in 2018 the cut tobacco became widely available, and today it can be bought at any green market all over the country, even in some retail shops, it can be delivered to any home by placing an order via cell phone, etc. According to one of the sellers of cut tobacco, his daily sale varies from 100 kg to 150 kg (at only one "selling place" on one green market) which is really alarming for us from the point of view of the stability of the legal tobacco market.
• A large increase of the sale of paper rolling trays (used only for cut tobacco). The trays are available all over the country and in some cases are sold more than cigarettes. We would like to point out that these trays are illegally sold on the green markets where the packaging does not contain any label or information about the importer and/or producer.
•  Emergence of false "branded" cut tobacco.

Тутун небрендиран

The effect of illegal tobacco

The industry estimates that the illegal tobacco currently encompasses at least 8,0% of the total tobacco consumption (or over 360 million cigarettes per year). This not only is a serious threat to the incomes of the state and for the participants in the legal tobacco markets (producers, importers, distributors, retail shops, tobacco producers, etc.), but it is also a threat to the general public. Our estimation is that in 2018, the budget of the Government lost more than 940 million denars (or about 9%) for excise fees due to the illegal tobacco. Additionally, the state lost another 200 million denars from the VAT. Overall, in 2018 the state budget lost more than 1,1 billion denars or 18, 5 million euros. If the Government does not immediately start a general fight against illegal tobacco trade, the state incomes from tobacco excise will reduce even more in the future. If this trend continues, we estimate that the losses from excise fees could reach 1,8 billion denars and 3,3 billion denars in 2019 and 2020, respectively, with additional losses from the VAT in the amount of 400 million denars and 740 million denars in 2019 and 2020, respectively.

It is important to mention that in 2013 Macedonia made changes to the Law on excise which are fully harmonized with the Directive on excise of the EU (2011/64). With the changes the incomes from the tobacco excise increased twofold, from 5,7 billion in 2012 to 11,3 billion in 2017 with an annual growth of over 14,4% in the analyzed period. The recent development of the illegal tobacco leads to an erosion of the state incomes and of the overall legal industry and threatens to delete the progress that has been achieved in the past 5 years. Hence, the implementation of the laws on behalf of the Government and undertaking activities are indispensable without any procrastination.

Not only does it cut the incomes of the state, the illegal tobacco also puts an enormous pressure on the legal participants in the market because the more people buy cut tobacco, the more the incomes coming from legal channels reduce with which a lot of jobs are put in danger.

Last but not the least, the illegal tobacco is a serious health issue because it is of unknown origin and suspicious ingredients, without any type of quality control. 
               
Recommendation 

In 2018, the illegal tobacco trade significantly increased and became a serious threat to the legal participants and put the state incomes in danger. This demands the urgent attention from the Government and a decisive action. Currently, the availability of the illegal tobacco expands even more and the people who participate in the illegal trade are not afraid from the implementation of the law and of the consequences. As a first step, we propose for the awareness to be raised about the harm from the consumption of uncontrolled and unregistered tobacco products, as well as the awareness for the negative effects of the illegal trade, both on the Government and on the general public. Additionally, it is necessary for a systematic approach to be applied regarding the fight against illegal trade where all relevant stakeholders of the Government (along with the affected industries) will be joined together with a clear action plan.

The illegal trade cannot be solved only with a fight against the individual merchants selling on the green markets, but it is obligatory for the Law to be implemented in the illegal supply channels within which the tobacco is procured. The crucial propeller of the sustainable growth of the state incomes from excise is the stable size of the legal tobacco market that should be provided by implementing the laws and fighting illegal trade. The illegal tobacco trade puts in danger the whole industry and causes serious harm to the state incomes so decisive actions are immediately needed.

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