Excise reforms and coordinated enforcement required to combat smugglers

Black-market perpetrators are getting more creative in their attempt to outsmart enforcement agencies across the region, more so during the Covid-19 pandemic, said an international law enforcement consultant and founder of the Illicit Tobacco Strike Team of the Australian Border Force.  

The Retail and Trade Brands Advocacy (RTBA) illicit trade advisor Rohan Pike said, “Border closures, increased security checkpoints and active patrolling within countries across Southeast Asia in response to the Covid-19 pandemic have forced black market syndicates, especially the lucrative tobacco black market, to embrace out-of-the-box thinking when carrying out the crime.”

According to Pike, some of the creative methods uncovered by authorities recently include the use of high-tech drones, e-hailing services and even ice blocks on the river. Earlier in July 2020, New Zealand authorities found two million sticks of illegal cigarettes stashed inside stacks of metal frames for roof extensions. 

“When there is a will, there’s a way. The resolve of the criminal syndicates has caused an uptick in the tobacco black market in Southeast Asia, especially Malaysia and Australia, where excise duties are high.” Pike said. 

RTBA’s “Illicit Tobacco in the Asia-Pacific Region: Causes and Solutions’ reported that out of the RM25.3 bil of total tax loss across 19 monitored markets in the region in 2017, nearly half of it occurs in these two countries.   

Additionally, the ‘Illicit Tobacco in Australia’ 2019 report by KPMG, which was released in May 2020, cited that illicit tobacco consumption in Australia has increased from 14.1% of sales in 2018 to 20.7% as of May 2020. The regular increment of tax has not seemed to deter Australians from smoking, but instead seem to be an indirect marketing tool for the black-market trade. 

Similarly, in Malaysia, the sales of illegal cigarettes have increased from 36.9% of in 2015 to 62.3% in 2019, according to the ‘Illicit Cigarettes Study in Malaysia 2019’ report. Prior to the surprise excise hike in 2015, the illicit sector market share was at 34%.  

“Clearly, the primary motivation for tobacco black market syndicates to outwit authorities is the price gap between cheap illegal cigarettes and legal cigarettes that come with high excise duties,” Pike said. 

“In order for countries like Malaysia and Australia to tackle this problem quickly and effectively, governments must take the bold step to review the current excise duty structure. In fact, the Australian Taxpayers’ Alliance has recently requested a closer look at the high tobacco tax because while the legal sales of tobacco have decreased, the total sales have remained the same,” he added.  

“Enforcement agencies across the Asia-Pacific region must also come together to form a dedicated task force that can better share intelligence and resources so as to get ahead of creative criminals. 

“The Covid-19 crisis is expected to cause a rise in black market consumption due to job and income insecurity. Governments must take immediate action from a policy and enforcement standpoint to safeguard their economies,” Pike concluded. 

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