Tobacco Smuggling and Taxation

By Kola Akinmurewa

Illicit trade is a global multi-billion dollar ‘enterprise’ and, according to the website illicittrade.org, spans a wide range of activities that include intellectual property infringement and the smuggling of excisable goods and counterfeit products. The trafficking of humans, endangered wildlife, weapons, as well as stolen vehicles and cultural objects is also counted by Interpol as illicit trade activity.

Illicit trade is often one branch of a complex network of organised international criminal activity that could include narcotics and prostitution, and is difficult to fight due to its transnational nature. According to a report published by the International Tax and Investment Centre, ‘Cigarettes, being highly taxed, easy to transport and possessing a lucrative risk to reward ratio, are among the most illegally trafficked goods in the world.’

Easily exchangeable for cash, cigarettes are widely acknowledged by international law enforcers as a source of funding for other criminal activities; another reason for our governments to sit up and take notice of the insidious crime that is illicit trade.

The intention behind increased tobacco taxation is understandable: to increase the retail price of tobacco products in order to decrease consumption. This no doubt will support public health objectives as well as efforts to increase government revenues, however, the design of national tax structures should be carefully considered alongside social and political realities in order to avoid unintended consequences. In West African countries, which are known to have porous borders and relatively ineffectual law enforcement, great care must be taken to ensure that our governments do not inadvertently establish policies that encourage increased cross border illicit trade. Adverse increases in taxation often lead to attempts to evade tax; attempts which could include the smuggling of excisable goods such as cigarettes.

So what do we want, as a society? We want reduced tobacco consumption, growth in funding for public health initiatives, and increased government revenues. What we don’t want however, are rash decisions and policies causing long-term consequences that may turn out to be harder to eradicate than the initial problem. When a legal product in high demand is priced out of reach of its consumers, a void is created that is filled by the law of demand and supply, regardless of the authenticity or legality of the substitute product. This has been the case with computer software and DVDs, particularly in low income nations.

Illegally trafficked cigarettes are just one lucrative business in the portfolio of organised criminal networks, networks which West African nations are sadly unable to effectively monitor and control due to a lack of trained man power, technology and funding that is available to international law enforcement units. Our economists and finance ministers would thus do well to liaise with our law enforcers and Customs to establish a well-rounded view of the pros and cons of tax and pricing policies in West Africa, particularly when it comes to a fast moving commodity such as cigarettes.

Even fervent anti-tobacco activists recognise the impact of the trade in illegal cigarettes, as a report on tobacco taxation funded by Bloomberg Philanthropies and the Bill and Melinda Gates Foundation states that ‘If the global illicit trade were eliminated, governments would gain at least $31billion and from 2030 onwards would save over 160,000 lives a year’.
Our governments should clearly be focusing greater effort on increasing collaborative enforcement measures to tighten border control and significantly reduce illicit trade across West Africa, rather than blindly accepting tax policies devised by international bodies far removed from our realities.

Kola Akinmurewa public affairs Analyst based in Lagos

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