Tobacco smuggling costs Nigeria over N250 billion in unpaid taxes annually – Freddy Messanvi

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When the new law was made public, not a few smokers found themselves behind police counters for ‘smoking’ in the public. The rumour made the rounds at the time that smoking in public places was banned in Lagos State; the misinformation was orchestrated in the press also and the outcome is now history.

When the new law was made public, not a few smokers found themselves behind police counters for ‘smoking’ in the public. The rumour made the rounds at the time that smoking in public places was banned in Lagos State; the misinformation was orchestrated in the press also and the outcome is now history.

But head of litigation and regulation at the British American Tobacco Nigeria, Mr. Sola Dosunmu, in a parley with journalists in Lagos recently said that was never the case.

“The bill in Lagos actually dealt with public health and life; you are allowed to smoke on the streets, on the roads and on the highways, but the interpretation of ‘public places’ was assumed to be just about anywhere people are sitting down, standing up or hanging out.

“The law even recommended that hotels, hospitals, eateries etc, should dedicate 10% of their premises for smokers. Now it’s up to the smokers in the society to either smoke in prescribed public places or out of sight of policemen,” Dosunmu said.

Illegal tobacco trade: the facts and figures

Illegal tobacco comprises three categories of illegal activity:

  • Counterfeit cigarettes: They are likely to contain many times the levels of tar and carbon monoxide found in genuine cigarettes, and in some cases can contain insects and human faeces. The vast majority of fakes come from illegal operators in China, Paraguay, the Middle East, and Eastern Europe.
  • Smuggled genuine product: These are products manufactured for a certain market or country, but find their way illegally into another market.Or are products carried into the country by passengers returning from a trip abroad and which are far in excess of the customs allowance for individuals. Taxes due to governments are evaded as a result.
  • Illicit whites: Cigarettes that are generally legally produced in a market primarily to be smuggled into another market where they have limited or no legal distribution. The growths of illicit whites pose the most significant threat.

You can easily sit down in your room; place an order for counterfeit product, say, like Benson & Hedges from China. You send a picture showing them how the packet and stick of the product are; you pay for it by bank transfer and when they receive payment the product will be sent via the high seas and all you do is to clear when it arrives. It has become an art and as easy as that.

In a spirited effort to raise awareness of the facts around the illegal tobacco trade which coincided with the WHO’s World No Tobacco Day onSunday 31 May, BAT has developed a new campaign to showcase the nature and scale of the illegal tobacco trade, and the approaches required to tackle it which vary from country to country.

However, if all the different organisations involved in the illegal tobacco trade around the world were combined into one conglomerate, it is envisaged that the company would become the third largest international tobacco company by internal revenue generation.

The campaign portrays this fictional tobacco conglomerate — International Tobacco Smugglers Inc. (ITSI) — profiling the criminal supply chain and how these people are working together on an international scale in sophisticated, highly organised, criminal networks to manufacture, transport and distribute tobacco products illegally.

These people include the persons selling cigarettes for pocket money prices in local neighbourhoods and the transport specialist who ships illegal tobacco products from country to country, through to the wealthy ‘king pin’ who is in overall control.

Freddy Messanvi, BAT’s legal and external affairs director, puts it this way: “The impact of illegal tobacco may not be felt as immediately and directly as other crimes, but the consequences are very real. By some estimates, illegal tobacco costs governments around the world $40-$50 billion each year in unpaid tobacco taxes.

“In West Africa, it is estimated to cost about $774 million to governments across the region. Coming closer home, in Nigeria, this implies that illicit activities attributes to the shortfall in government revenue from tobacco sales by an underestimation of over N216 billion paid in taxes to the Nigerian government which could have been higher.

Smuggling not a lesser crime

Authorities see it as a lesser crime. It’s not a crime that somebody is shot for because nobody dies. They think nobody suffers when they smuggle tobacco products but unfortunately, there are victims of these products. When they are smuggled in, government loses millions of dollars from revenue; the tobacco manufacturers themselves will suffer; the smokers themselves will suffer.

Illegal tobacco and terrorism

A crucial fact to note also is that sales of illegal tobacco have been reported to fund human trafficking, drug and arms trades as well as terrorist organisations globally.

A study in Europe has linked tobacco smuggling to terrorism, child trafficking and drug trafficking. It was found that those who smuggle tobacco use the money to fund terrorism and trafficking of persons and hard drugs across the globe.

Combating the menace

According to Messanvi, BAT has been operating in Nigeria since 2003. “In the 15 years of our operations in Nigeria, we have shown commitment to the Memorandum of Understanding (MOU) signed with the Nigerian Government to regularise the tobacco sector, support sustainable Foreign Direct Investments (FDI) and contribute to socio-economic development in Nigeria.

“Our partnerships with government agencies have yielded a significant reduction in (the) incidence of illicit tobacco products in Nigeria with a reduction from about 80% share of market when we first came in to less than 20% as at 2015, thereby supporting the reclaiming of government revenue lost through illegal tobacco marketing channels. Though a significant achievement, we believe there is still work to be done in this area.

“The amount of illegal tobacco is much more significant than is generally realised: an estimated 400-600 billion cigarettes, the equivalent of approximately 10-12% of world consumption globally and in West Africa about 60 billion cigarettes which is about 10% of the global illicit trade.

“It is a transnational, multi-faceted issue and one that requires a collaborative approach, from governments and law enforcement agencies with whom we work in partnership to retailers and customers who can arm themselves with the facts, to tackle it.”

The nature of the illegal tobacco trade varies from country to country but the drivers are very similar. These include regulation that is not balanced, over-regulation, large excise increases causing price differences between countries and ineffective law enforcement measures: Customs is ill-equipped to eliminate smuggling of illegal cigarette smuggling.

Freddy Messanvi further said that BAT as a tobacco manufacturer is an important part of the solution of tobacco smuggling.

“We are an important part of the solution and we invest over $75 million each year globally to fight the illegal tobacco trade industry.

British American Tobacco has dedicated Anti-Illicit Trade teams across the world and in Nigeria that work with government agencies, including police and customs officials, with the aim of bringing criminals who are involved in the illegal tobacco trade to justice. We also support the FCTC Protocol to eliminate Illicit Trade in Tobacco Products, but this treaty will only be effective if it is consistently applied and enforced by joined up governments.”

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High taxes boosts black market

One key argument that was canvassed by anti-tobacco organisations was the need to selectively target cigarettes with increased taxation. The thinking behind this is that with heavier taxation, cigarettes become more expensive with the result that they become increasingly beyond the reach of especially first-time smokers such as young people, while regular smokers are forced to cut-down on their intake on account of cost.

But an official of the Centre for the Promotion of Enterprise and Business Best Practice in Wuse 2, Abuja, Akeem Ogunlade, reveals that the reality, unfortunately is counter-productive.

According to Ogunlade, while high taxes are effective at jacking up the cost of cigarettes, they have proven ineffective at reducing the incidence of smoking. “The obvious reason is that when cigarettes produced by the legitimate industry are priced out of the reach of regular consumers on account of unrealistic taxation, consumers naturally resort to smuggled cigarettes which are cheaper and readily available.”

More gainers than losers

Ogunlade further revealed that unduly high taxes will disrupt this critical balance and tilt it in favour of the illicit tobacco industry. “The reason is simple: If products are priced beyond the reach of consumers and they abandon the cigarettes produced by the legitimate tobacco industry in favour of smuggled imported brands, the legitimate industry will promptly collapse, alongside the consequences such as tax revenue losses to government and loss of jobs,” he said.

Will this lead to reduction in the incidence of smoking in Nigeria?

“Not likely. An uncontrolled and unregulated industry in which smugglers and black marketers hold sway is more likely to enhance the incidence of smoking anywhere in the world.

“Indeed a recent report in The Economist affirms this. Cigarette smuggling, The Economist says, in its February 14, 2015 edition, “is common in New York: 58% of cigarettes smoked in New York are contraband. The reason is that tobacco taxes are high: a pack of 20 costs $13 in New York compared with $5 in Missouri, the state with the cheapest gaspers.” The paper adds that while there may be sound public health reasons for taxing tobacco, the higher the taxes, the bigger the black market.

“So that we do not ultimately create worse problems for society, than it seeks to achieve.

“Interestingly, the Nigerian situation is such that over the last 15 years or so, with the increasing entrenchment of a well regulated and functional tobacco industry, the country has witnessed a steady decline in the volumes of cigarettes smuggled into Nigeria,” Ogunlade concluded.

It would be recalled that the Manufacturers Association of Nigeria (MAN) recently commended BATN for promoting high quality standards in its operating environment, consistent with international standards.

President of MAN, Dr. Frank Udemba Jacobs, who had led a delegation from the association on a visit to the British American Tobacco factory in Ibadan, last week, revealed that one of the major responsibilities of MAN is to provide its members with the means of formulating and communicating general policies with respect to industrial, labour and technical matters.

“I commend BATN for operating in an environment that is consistent with global standards. As part of our processes, it is essential for us to ensure that our members’ operating systems are consistent with the provisions of MAN, one of which is the promotion of an enabling environment for industrial development, growth and prosperity of the society,” Dr Jacobs said.

“We also have a responsibility to ensure that there is an appropriate operating environment for our members,” he continued, “and when issues arise, it becomes our duty to ensure that the government takes the appropriate action in resolving them. As part of our responsibilities, we are duty-bound to visit our members periodically to learn first-hand some of the enormous challenges confronting them.”

Responding to the call for the suspension of the Export Expansion Grant (EEG) for manufacturing companies, Dr Jacobs said the EEG is a very important initiative that supports the government’s diversification of the economy.

“The only way the manufacturing companies can be encouraged to drive the diversification of the economy is when they are provided with unique incentives, which in this case could be given in form of Export Expansion Grant,” he said.

Citing erratic power supply, port congestion and increase in export tariff as some of the key challenges confronting the manufacturing sector, Dr Jacob commended the players in the manufacturing sector for their resilience. He also urged them to rise above the prevalent challenges, knowing that there is hope that the situation will improve.

“I am a great optimist who believes that whatever challenges we are confronted with are not insurmountable, believing that things are better compared with what was obtainable in the past,” he said.

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