Perspectives on illicit trade in tobacco

A major challenge confronting today’s tobacco market is illicit trade.  The Financial Action Task Force (FATF), a global inter-governmental body, defines illicit trade in tobacco as “the production, import, export, purchase, sale or possession of tobacco goods, which fail to comply with legislation.” In Nigeria, there are aspects of the National Tobacco Control Act (NTCA) 2015, the document which provides a legal framework for the production, importation, distribution, sale and consumption of tobacco in the country, which address this problem. For example, Article 35 of Part XI of the law allows for the procurement of search warrants for inspection of dwelling places suspected of harbouring illegal or substandard tobacco or tobacco products. Regrettably, failure to fully implement tobacco control regulation has engendered growth in illicit trade of tobacco products.

The World Health Organisation (WHO) estimates that all over the world, 10 per cent of cigarettes consumed are illegitimately produced or sold. In Nigeria, the volume of illicit cigarettes smuggled into the country constitutes 20 percent of the total product consumed and has been on the rise lately. Apart from posing health risks to consumers, illicit tobacco trade deprives government of its much-needed revenue through taxes and import duties. Illicit tobacco merchants are economic saboteurs who engage in various nefarious activities and evade revenue and excise duties payments that are due to government. Cigarette smuggling has been known to be a major source of revenue for organised crime. Not only does it promote criminality, it also misleads consumers into buying products that are of dubious quality.

It has become more imperative now to enforce the provisions of the Tobacco Control Act as Nigeria continues to grapple with the impact of illicit trade in tobacco products. Besides, old tricks are still being employed to entice people who are under the legal age to smoke tobacco. One of such tricks, as confirmed by the Standards Organisation of Nigeria (SON), is flooding the market with flavoured cigarettes, to allure young people because of their sweet-smelling aroma. Flavoured cigarettes with chocolate, cherry, apple and orange flavours are completely outlawed under recently enacted regulations. But they are as widespread as the cigarette brands that are legally allowed to be sold in Nigeria. Flavoured cigarettes are typical examples of illicit cigarettes known as ‘cheap whites’, brands sold illegally by producers who have no legal distribution network and do not pay any taxes.

The menace of illicit trade in tobacco is also aggravated by high taxes and stifling legislation, which often constrict legitimate tobacco business thereby pricing out poor and average income consumers of tobacco products. As a result, they resort to buying from illicit tobacco dealers. Studies have shown that smokers are more likely to search for cheaper alternatives when there is a hike in retail price of cigarette. The cheaper alternatives are mainly provided by the suppliers of the illicit or smuggled products who have avoided paying statutory duties. It amounts to a huge loss to governments, coupled with the harm that consumers are exposed to through consumption of unregulated products. Recently, the World Customs Organisation, whose members manage 98 per cent of global trade, made an interesting finding on the linkage between tax burden and illicit trade of excisable products. According to the finding, “Experience across both advanced and developing economies demonstrates that the key economic drivers influencing the illicit tobacco trade are excessive tax levels, usually resulting in a sharp decline in cigarette affordability, compounded by weak or no enforcement of existing laws and organised crime’s willingness to supply given the opportunity to gain large profits from tax avoidance.”

In the long run, the black market continues to flourish on account of high price occasioned by harsh regulation. In recent years, Standards Organisation of Nigeria (SON) has made significant progress in its efforts to combat illicit trade in tobacco by sensitising the general public on the proliferation of brands of cigarette not approved for sale in the Nigerian market. Such efforts by the regulatory bodies in the country should be scaled up in order to discourage patronage of dubious brands and rid the Nigerian market of illicit and contraband tobacco.  Another way by which illicit trade in tobacco can be curtailed is by localising the production of tobacco. Localising production helps to monitor and enforce standards effectively. This also makes the local producers to be more responsible and accountable for the manner in which their products are dispensed. The task of containing the menace of illicit trade in tobacco is a collective one. No doubt, this can be achieved through full implementation of the NTCA.

  • Ogunlade is of the Centre for the Promotion of Enterprise and Business Best Practice, Abuja.

 

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