Decline of illicit cigarette trade


2015-11-29

 

A market survey commissioned by the major tobacco companies was presented at a working meeting in the Ministry of Interior. The non-domestic incidence in the second quarter of this year is 13.4%. „This is the lowest level of illicit cigarette trade in the past 8 years since the survey is conducted in Bulgaria", the companies announced and explained the results are due to the determination and the political will of the government and the strict measures against illicit trade implemented from the beginning of the year.

 

The results of the market survey were presented by the 5 companies: British American Tobacco Bulgaria EOOD, Bulgartabac Holding AD, Japan Tobacco International Bulgaria EOOD, Imperial Tobacco Bulgaria EOOD and Philip Morris Bulgaria EOOD, participants in the Anti-Illicit Trade Initiative (AITI)*  to the Vice-Premier and Minister of Interior, Riymyana Bachvarova, Deputy Minister of Interior Philip Gounev, Secretary General of the Ministry of Interior Georgi Kostov, Directors of Directorates of Fight Against Organized Crime, Analysis and Policies and the Director of Customs Agency Vanyo Tanov and their teams responsible for the fight against contraband at a special meeting on Nov 27, 2015.

 

"Fighting contraband in excise goods is one of the key priorities of the government and the motivation is both fiscal and principled", Minister Bachvarova stated during the meeting attended by representatives of the five major tobacco companies. The Deputy Prime Minister pointed out that in line with the government priority an Interagency Coordination Centre for Fighting Contraband and Controlling the Movement of Risk Goods and Shipments was established within the Anti-Organised Crime Unit (AOCU). Representatives of all institutions tasked with addressing the problem work together in the Centre. This new Centrer has already produced positive results and has proven its effectiveness.

Minister Bachvarova thanked the partners for the overall picture outlined by the survey which provides an opportunity to gain insight of all aspects of the situation and added that such working meetings are mutually beneficial and bring positive outcomes.

According to the General Secretary of MoI Georgi Kostov it is the coordinated approach and the focused efforts of MoI, the Customs Agency and National Revenues Agency that resulted in a significant reduction of the contraband in excise goods. He also stated the role of the Centre in AOCU for boosting the cooperation among the teams and thus contributing to reducing organised contraband.

The Director of AOCU Chief Commissioner Ivailo Spiridonov noted the successful cooperation with the enforcement agencies in the partner countries which in joint operations were able to dismantle 5 illegal factories for cigarette manufacturing in Europe.

The Director of the Customs Agency Vanyo Tanov stressed that credit for the positive results should be given to the government which had the political will to work against the illicit cigarette trade. The methodology of the Customs Agency based on analysis of the excise revenues from tobacco products confirms the results presented. In the last quarter the excise revenues grew by the significant 17-19%. Fiscally this amounts to BGN220-230 million more in revenues from cigarettes and the forecast is that the revenues will reach BGN250 million by the end of the year, Tanov said. He stated that the Customs Agency is preparing, including in technical terms, for the upcoming increase in the excise in 2016 which is expected to make illicit trade in cigarettes more attractive for organised crime. Negotiations are under way for obtaining an X-Ray system for checking trains, he added as an example.

 

The latest market survey conducted in the second quarter of 2015 shows that illicit cigarettes represent 13.4% of the total cigarette consumption in Bulgaria. The survey is carried every year in the last 8 years by an independent research agency via collecting and analyzing empty cigarette packs in 14 big cities in Bulgaria. As of 2010 the survey is conducted in 2 waves per year, in the second and fourth quarter. It is assigned by 5 tobacco companies - participating in the "Anti-Illicit Cigarettes Trade Initiative"*.

The substantial decline by 4.7 pp vs. the previous survey carried out in the fourth quarter of 2014 (18.1%) is due to the declared political will of the government and the strengthened measures against cigarette contraband implemented since the beginning of this year. The good results are in line with the public data about increased excise revenues in 2015. Despite the improvement achieved, the tobacco companies believe there is potential for further limiting of the level of illegal trade in tobacco products - cigarettes and illegally offered cut smoking tobacco.

 

 "We hope that the fight against illegal trade in cigarettes remains a firm priority of the state and that the Government will continue to direct resources to perform measures against illegal trade to have a sustainable trend for decrease in its levels. Till the moment, this is a problem that deprives the state budget of hundereds of millions leva per year", the industry representatives stated during the meeting. 

 

Despite overall decrease and visible improvement in some cities, there are opportunities for improvement in numerous towns and cities, where the levels of illegal trade consumption remain high:

 

Svilengrad 49%

Gabrovo 45.9%

Blagoevgrad  31.8%

Pazardzhik  31.1%

Montana 29.8%

Plovdiv 29.6%

Sliven 25.9%.

Kyustendil 25.5%.  

 

The results of the survey and observations by the companies show that in Bulgaria the largest part of the illegal cigarettes have duty-free labelling and are offered on open markets, through delivery to offices, homes, administrative buildings, etc through a well organised illegal distribution. In the opinion of the industry, the prevention activities and seizures by the law-enforcement authorities should continue through even stricter control of the market and the borders and through investigations based on joint actions of all competent institutions in Bulgaria.

 

The representatives of the tobacco companies explained at the meeting that there are two critical events expected in 2016 that might open the door to illicit products inflow (including illicit whites, as well as from non-EU countries and of counterfeited products). These are the expected price increases due to the excise tax increase in force as of 2016 and the entering into force of the new requirements to the packaging of tobacco products as per the new EU Tobacco Products Directive as of May 2016. They emphasized that this situation should only encourage the authorities to be even more vigilant and decisive in their activities against contraband. Furthermore, the representatives of the companies reminded that illicit trade in cigarettes continues to be a serious issue in Bulgaria, in EU and globally as it deprives the governments from legitimate tax revenues and contributes to funding organized crime, and that a particular attention should be given to the fact that Bulgaria is geographically located at one of the most vulnerable external borders of the EU.

 

*The"Anti-Illicit Trade Initiative" was launched in 2010. It includes British American Tobacco Bulgaria EOOD Bulgartabac Holding AD, Japan Tobacco International Bulgaria EOOD, Imperial Tobacco Bulgaria EOOD and Philip Morris Bulgaria EOOD and it aims at supporting the law enforcing authorities in Bulgaria in fighting illicit cigarettes trade. Illicit cigarettes trade is a serious concern for the Bulgarian Government and needs to be fought by all possible means as it encourages organized crime, deprives the government from tax revenues, poses risks to consumers, facilitates youth smoking, damages legitimate retailers, and affects employment in Bulgaria.

Every year the companies assign an independent agency the task to research the levels of non-domestic cigarette incidence twice a year and they present the results to the relevant authorities and to the public.