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Illicit tobacco continues to be an issue around the world, but how bad it is seems to be interpreted differently. Photo credit: PxHere
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Southeast Asian countries, highlighted in colors other than gray in this map. Photo credit: Cacahuate, Globe-trotter, and Texugo, CC4.0.
The World Health Organization’s (WHO) regional office for Southeast Asia recently released a report, Illicit Trade of Tobacco in Southeast Asia Region, in which it pushes WHO Framework Convention on Tobacco Control’s (FCTC) Protocol to Eliminate Illicit Trade in Tobacco Products as the playbook whose measures should be adopted by countries to eliminate illicit trade. Currently, in the region, only India and Sri Lanka are parties to the Protocol. In a message at the beginning of the report, WHO Southeast Asia regional director Saima Wazed said, “…progress has been rather slow in the region in combating illicit trade. Appropriate policies and tools are either not in place or often poorly implemented.”
Interestingly but not unexpectedly, Wazed went on to emphasize that “the common narrative of the tobacco industry – that higher tax would result in more illicit trade – turns out to be a myth for the region.” It would have been more surprising if she had gone against WHO’s dogma and actually acknowledge anything that even had the barest link to the tobacco industry as being true.
The report itself, conducted by researchers from the Institute of Health Economics, University of Dhaka, covers India, Bangladesh, Indonesia, Nepal, Thailand, Sri Lanka, and Bhutan, providing literature reviews on the topic of illicit tobacco trade for all these countries, with the exception of Thailand, and tax gap analyses for all of them.
WHO Southeast Asia region member states are Bangladesh, Bhutan, Democratic People’s Republic of Korea, India, Indonesia, Maldives, Myanmar, Nepal, Sri Lanka, Thailand, and Timor-Leste. Looking at the countries WHO included in their analyses for this report, it appears that the focus is more on what is generally regarded as South Asian countries rather than Southeast Asian countries. Southeast Asia comprises Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Timor-Leste, and Vietnam as listed by various sources, including the United Nations. The only “real” Southeast Asian countries covered in the report were Indonesia and Thailand, but even then Thailand did not receive a literature review, with report authors claiming, “Attempts to estimate the size of illicit tobacco market are scarce in Thailand. Studies using pack analysis method or estimates from consumer survey are lacking in [the] case of Thailand.”
The research methodology employed involved searching for studies via sources such as Google Scholar, PubMed, and Web of Science. The researchers identified 18 studies “with themes closely aligned with our research objectives,” rejecting any studies found to have been funded by the tobacco industry (with the exception of the Asia Illicit Tobacco Indicator 2017 by Oxford Economics which was funded by Philip Morris International), as they “[tend] to overstate the prevalence of illicit trade.”
In addition to conducting literature review, the researchers used a tax gap analysis, but acknowledged that this method might not provide a comprehensive view of illicit trade in the region for reasons including local products such as bidis flying under the government radar when it comes to production or taxation estimates and “suboptimal” tax administration and collection data in the region. As such, the researchers relied more on the literature for their estimates. Whether 18 studies that did not include data from the tobacco industry that actually has empirical data is enough to provide “accurate and reliable estimates” is questionable.
Nevertheless, let us take a look at what the report found for Indonesia and Thailand, the two actual Southeast Asia countries that were included in the study.
Indonesia
For Indonesia, the literature review on a consumer survey by Kartika et al, The Illicit Cigarette Trade in Indonesia, conducted in 2018 with 1,440 respondents found that from over 1,100 cigarette packs collected, less than 2% were illicit and that according to the Asia Illicit Tobacco Indicator 2017, prepared by Oxford Economics, illicit consumption in Indonesia were at 9.7% of total consumption.
However, in An Analysis Of Purchase Price Of Legal And Illicit Cigarettes In Urban Retail Environments In 14 Low- And Middle-Income Countries by Brown et al in 2017 and funded by Bloomberg Initiative, a study WHO researchers also included in their references for the report, they found that “no illicit pack was found in Indonesia.”
The tax gap analysis proved to be a bit more detailed. The researchers chose to analyze a 2014 study by Ahsan et al, Illicit Cigarette Consumption and Government Revenue Loss In Indonesia, which assessed the scale of illicit cigarette trade using two methodologies. Through analyzing various surveys spanning from 1995 to 2013, Ahsan et al estimated the discrepancy between tax-paid sales and cigarette consumption.
They examined the annual trade inconsistencies from 1995 to 2012, which represent the difference between exports documented by trade partners and imports reported by Indonesia. The results indicated that illicit consumption rates were 17%, 9%, 11%, and 8% in 2004, 2007, 2011, and 2013, respectively.
Discrepancies in trade patterns suggested that cigarettes were illicitly brought into Indonesia each year from 1995 to 2012. The estimated value of illicit trade ranged from less than US$1 million to nearly US$50 million annually. Using a similar approach to analyze the disparity between sales and consumption, a more recent study in 2021 by Kasri et al, New Evidence Of Illicit Cigarette Consumption And Government Revenue Loss In Indonesia, updated the estimates of illicit trade for the period spanning from 2007 to 2018. Illicit cigarettes accounted for the smallest share at 5% of total cigarette consumption in 2013 and rose to 19% in 2018, a significantly higher figure compared to other documented studies.
Thailand
The WHO report researchers did not provide a literature review for Thailand. However, the Brown et al study found that 48% of the uniquely available cigarette products in Thailand were illicit.
For the tax gap analysis, they looked at a 2011 paper by Pirudee Pavananunt that compared tax-paid sales with tobacco consumption data as well as analyzed trade discrepancies be-tween 1991 and 2006. The author found that sales tax paid for cigarettes in this time period was higher than estimated consumption, interpreting this data to mean there was no strong indication of tax avoidance. But, the author did caution that it was unlikely that Thailand had no illicit cigarettes in markets, but that it was likely that there was under-reporting of cigarette consumption figures or other issues with the survey that led to the data reflecting higher tax paid sales than consumption. As such, the paper author decided that the results from this method were inconclusive.
In a 2021 article in Tobacco Asia, Thailand’s Increasing Illicit Imports by Thomas Schmid, the Thai Excise Department found that up to 30% of all cigarettes sold in the country were illegal. While the article was featured in a trade publication, the fact that the figure was reported by a governmental department gives it credence and cannot be dismissed as being influenced by the tobacco industry.
True to form, WHO’s report rejects the industry’s contributions in providing relevant data to combat the illicit tobacco trade. The one study funded by the tobacco industry that made it through the report researchers’ selective review, the Asia Illicit Tobacco Indicator 2017, actually provides a much more detailed overview and in-depth data that was obtained via more intensive methodology than the WHO report. One would think it would be difficult to arrive at an accurate standardized estimation from literature review of studies that used different methods in different settings and different time periods, as the WHO report did. The Asia Illicit Tobacco Indicator, on the other hand, used multiple data sources along with the Illicit Tobacco (IT) Flows Model, a custom-built analytical model it developed to estimate illicit consumption and trade flows between markets. The Model is divided into three stages: preliminary sizing of domestic market, preliminary sizing of trade flows, and iteration in the cross-market flows model. Each stage processes data from primary and secondary sources, such as IMS data, tax receipts and official government data, empty pack surveys, consumer surveys, and academic research.
Of course, the anti-tobacco sector has criticized the methodology used in the Asia Illicit Tobacco Indicator, saying the figures were exaggerated and meant to deter governments from raising tobacco taxes. The same dismissive attitude ready to pick at any perceived flaws in other studies on illicit trade that received funding from tobacco companies, no matter how credible, prestigious, or well-respected the study researchers, including global leading research houses such as Oxford Economics, Nielsen, Euromonitor, or KPMG, to name a few, is counterproductive in the fight against illicit tobacco. If the preferred direction for research is to go for less comprehensive, less in-depth analyses due to weaker methodology and access to real, on-the-ground data, it’s little wonder why it often seems that there is not enough thought, effort, and resources given to productively fight illicit tobacco from the very people who are so vocally opposed to it.
If law enforcement agencies, including international ones such as the European Anti-Fraud Office (OLAF) can use “intelligence” from the industry in their efforts to combat illicit tobacco trade, why can’t everyone else?